2011 AEP Corporate Accountability Report

11 Corporate Accountability Report American Electric Power 20 9 Transforming Our Business for Sustainable Growth $70 energy efficiency in 2010 invested in million

Audit Review of This Report AEP Audit Services performed a review of the information included in this 2011 AEP Corporate Statement Accountability Report. Financial information was reconciled with AEP’s audited financial statements, if applicable, or to such other sources as deemedGRI hereby states that American Electrical Power has presented its report “2011 Corporate Account- appropriate. Processes used in accumulating the significant nonfinancial data were reviewed and the data were reconciled to the source(s). The appropriateness of the context in which data areG3 Guidelines. presented was also reviewed. Finally, the forward- looking information presented was verified as consistent with other public information disclosed by31 March 2011, Amsterdam AEP. Based upon our review, we believe the information contained in the report is appropriately stated, and that the processes followed in accumulating both the financial and nonfinancial infor-Nelmara Arbex mation are reasonable. Contact Information For information about this report, the content ofDisclaimer: our website or AEP’s sustainability initiatives, or tolater changes to such material. provide feedback, please contact Sandy Nessing at smnessing@AEP.com or Jerra Thomas at jmthomas2@AEP.com.

About This Report Company Overview 2010 AEP Economic Impact 2010 Total System – Annual SO2 Emissions ( in thousand U.S. tons ) American Electric Power has been providing electric service for more Employees (year-end) 18,712This is AEP’s second integrated report combining the An- than 100 years and is one of the nation’s largest electric utilities, serving 2005 900 Wages $1.8 billionnual Report to Shareholders with the Corporate Sustainabil- 5.3 million customers in portions of 11 states. Construction Expenditures $ 2.3 billion 1 2006 853 ity Report. This is our fifth year of reporting our sustainability Revenues (in billions) $14.4 Local Taxes $ 489 million 2007 749 performance. This printed report is supported by a web- Net Income (in millions) $1,211 1site – www.AEPsustainability.com – that includes significant Earnings Per Share $ 2.53 1 State Taxes $ 361 million 2008 638 Federal Taxes $326 millionadditional data and information about AEP’s performance. Cash Dividends Per Share $1.71 Goods & Services (does not include fuel) $ 3.6 billion 2009 457This report is based largely on calendar year 2010 with ex- Service Territory 200,000 square miles Goods & Services from Diverse Suppliers $ 340 million 2010 416ceptions for early 2011 data as noted. For more information Transmission 39,000 miles Remaining Value of All Contracts $ 1.04 billion 2about AEP, visit www.AEP.com. Distribution 220,000 miles Coal Purchased (tons) 64.6 million Total System – Annual NOx Emissions ( in thousand U.S. tons ) Generating Capacity 39,000 MW 2 2005 275 Coal Average Purchase Price (per ton) $ 44.82Global Reporting Initiative Generating Stations 69 Corporate Giving $23.7 million 3We follow the GRI guidelines for reporting our performance. Renewable Portfolio (hydro) 364 MW 3 Economic Development Contributions $2.7 million 4 2006 270A complete index of performance indicators begins on page48. All of the data supporting these indicators can be found on Pumped Storage 586 MW 4 1 Construction expenditures include those expenses listed in the Cash 2007 266 Renewable Portfolio (wind, solar) 1,504 MW 5our website – www.AEPsustainability.com. We also report Total Kilowatt-hour Sales (in millions) 206,000 2 Flow Statement. Supply chain purchased contracts and inventory system. 2008 249on electric utility industry-specific indicators. Total Assets (in billions) $ 50.5 3 Includes $11.8 million of AEP Foundation grants. 2009 121 4 U.S. Customers (year-end, in millions) 5.3 Includes all grants and contributions by utility units to support economic development. 2010 125 1 Generally Accepted Accounting Principles.AEP Service Territory 2 Represents nominal capacity; includes 270 MW of mothballed /de- Total System – Annual CO 2 Emissions ( in million metric tons ) commissioned generation, AEP’s interest in Ohio Valley Electric Corp., purchased power agreements and renewables. Market Price – Common Stock 2005 145.1 High $ 36.51 3 Excludes pumped storage; includes owned capacity and purchased power. Nameplate capacity. 2006 143.9 4 Nominal capacity. 2009 Low $ 24.00 2007 147.7 Year-End $ 34.79 5 Regulated wind and solar capacity online or under contract. Name- plate capacity. 2008 148.2 High $ 37.94 2009 129.7 AEP’s utility units operate as AEP Ohio, AEP Texas, Appalachian Power 2010 Low $ 28.17 2010 134.0 (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Year-End $ 35.98 Oklahoma, and Southwestern Electric Power Co. (in Arkansas, Louisiana and east Texas). 2010 Ongoing Earnings Contribution 2010 Energy Sales The company is based in Columbus, Ohio. n Ohio Power 24 % n Residential 30 % n CSP 17 % n APCO 16 % n Industrial 28 % n SWEPCO 11 % n Commercial 25 % n Wholesale* 17 % n I&M 10 % n AEP Texas 8 % * Wholesale includes sales to municipal and cooperative power systems, n PSO 6 % other wholesale and miscellaneousThis report was printed by Sandy Alexander Inc., an ISO 14001:2004 certified printer with Forest Stewardship Council Chain of Custody certification, on 55 n Others 5 % retail sales.percent recycled paper, including 30 percent post-consumer waste, with vegetable-formulated inks. CSP (Columbus Southern Power) n Kentucky Power 3 % APCO (Appalachian Power Co.) I&M (Indiana Michigan Power) PSO (Public Service Company of Oklahoma) SWEPCO (Southwestern Electric Power Co.)© 2011 American Electric Power Co., Inc.

www.AEPsustainability.com Index of Topics 2 A Message from the Chairman & CEO Michael G. Morris 6 Leadership, Management & Strategy 12 Business Performance: Financial 16 Business Performance: Energy Security, Reliability & Growth 22 Environmental Performance: Environment 28 Environmental Performance: Climate Change 32 Social Performance: Work Force 38 Social Performance: Public Policy 42 Social Performance: Stakeholder Engagement 47 Corporate & Shareholder Information 48 GRI Table of Contents / Key Indicators Forward-Looking InformationStatement of the AEP Board of DirectorsThe AEP Board of Directors has assigned the responsibility for report have been the subject of active discussion at the Board andmonitoring and overseeing the company’s sustainability initiatives Committee meetings. All members of the Board reviewed the re-to the Board’s Committee on Directors and Corporate Governance. port in detail and at the conclusion of this review process the BoardLast year, the Committee supported the integration of sustainability of Directors adopted a formal resolution approving the report.reporting with financial reporting and provided management with The Board believes this document is a reasonable and trans-guidance for the proposed approach to the corporate accountabil- parent presentation of the company’s plans and of its environmen-ity report. Stakeholders expressed approval and appreciation for tal, social and financial performance. The Board has emphasized toAEP’s leadership with this integrated approach to corporate report- management that it will continue to be evaluated by its success ining and we continue it this year. executing the company’s strategic plan to meet stakeholders’ and The Committee and AEP management thoroughly reviewed the Board’s expectations, including being agile in responding tothe company’s sustainability objectives, challenges, targets and changing circumstances while respecting the commitments madeprogress and reported the results of the reviews to the full Board. in this report.The Committee reviewed and discussed the final text of this reportbefore recommending its approval by the full Board of Directors. The AEP Board of Directors receives frequent reports bothfrom management and from the Committee on Directors and Cor-porate Governance about the company’s sustainability initiatives Lester A. Hudson, Jr.and from management and Board committees about the compa- Presiding Director of the AEP Board of Directorsny’s financial reporting and economic performance. Topics in this April 5, 2011 2011 AEP Corporate Accountability Report 1

A Message from the Chairman & CEODear Friends: the way in which we interact with our customers. All options are being analyzed andTo grow, prosper and remain sustainable, when our plan is complete, we will share it.we must embrace change and transforma- We expect natural gas will play a largertion. Change requires leadership, courage role as shale reserves are developed. Weand an open culture. Transformation de- expect gas suppliers to responsibly ad-mands candor, trust and collaboration as we dress environmental and safety issues.engage with many different stakeholders to Other energy sources also will play a biggerfind the best solutions. Above all, sustaina- role, including renewable resources wherebility requires shared commitment, clear in- they are accepted, nuclear power, hydrotent and a solid plan of action. The changes power, demand response programs andunder way at AEP will transform our opera- energy efficiency. Transmission will be ations, reduce our environmental impacts more critical resource, too. Consequently,and ensure our long-term financial health. our capital investments will shift as we Our sustainability journey has already build natural gas plants, continue to investcarried us far. Our accomplishments in- in transmission and update aging equip-clude significant reductions in air emissions; ment. This strategy will benefit our custom-improved employee safety and health; ers, our investors, the environment and ourimproved system reliability; investments in technologies that will other stakeholders. But it will come at a cost.shape the future of energy production, transmission, distributionand use; the growth of our modern transmission business; reduc- Energy Policy Lackingtions in our own energy use; increases in our fuel diversity, includ- We are in desperate need of a comprehensive federal energy policying the use of renewable resources; sustainable dividends for our that addresses environmental concerns and energy security andshareholders; a stronger balance sheet; new partnerships with establishes a long-term energy strategy for the nation. Only a coor-many stakeholders; and improved service to our customers. We dinated national plan can ensure our energy security and reliability.are proud of these achievements. Without it, energy-related decisions will, out of necessity, be more But the future looks much different than before. The road tactical than strategic.ahead is paved with significant challenges for our company and If the U.S. Environmental Protection Agency’s (EPA) proposedour customers that were not on the radar even three years ago. A rule to control mercury and other emissions is a harbinger of thecombination of factors is forcing us to look at our business in a new agency’s plans for several other regulations, our transformationlight. Key drivers include eroding tolerance by customers for rate may be accelerated, but with serious financial consequences. Itincreases; denial by state regulators to recover our investments in most certainly will increase our costs to comply as well as what ourcarbon capture and renewable energy; slow economic recovery customers pay for electricity.in most of our states; more complex and stringent environmental Let me be clear: We support the Clean Air Act. But the EPA’sregulations that will push customer rates still higher; the rising cost process and timelines are not realistic, and that is what we taketo operate older, less efficient coal units; the cost-competitiveness issue with. We support rational environmental regulation that pro-of natural gas compared with other fuels; a dramatically different vides significant public health and environmental benefits. Butpolitical landscape; and new concerns about the future of nuclear compliance requirements must be affordable and at an achiev-power in the wake of the Japanese nuclear crisis. able pace. Already, we know that compliance with the proposed We are developing a transition plan that addresses grid reli- new hazardous air pollutants rule on the prescribed timeline will beability, customer bill impacts, sustainable job creation and the need extremely difficult and will prompt premature retirements of somefor a more diverse fuel portfolio in the future. It will also transform coal units across the country.2 A Message from the Chairman & CEO

www.AEPsustainability.comWe are in desperate need of a comprehensive federal energy policy thataddresses environmental concerns and energy security and establishes along-term energy strategy for the nation. The price tag could be staggering; we won’t know the final cost AEP Dividend History until all of the regulations are finalized, but we estimate the cost of Compound Annual Growth Rate = 4.0% ( $ /share )compliance under the EPA’s timeline could be more than doublewhat we have spent so far for environmental controls. Our concern 2004 $ 1.40 is the failure to consider all of the regulations in total, rather than 2005 $ 1.42one-by-one. This impedes our ability to determine which coal unitshave to be closed and which will remain in service. This uncertainty 2006 $ 1.50 complicates our resource planning. We also are deeply concerned 2007 $ 1.58 that the EPA’s process does not consider the loss of jobs and com- 2008 $ 1.64 munity tax revenues and the impact of higher electric rates, espe- 2009 $ 1.64 cially on low-income customers and electric-intensive industries. We hope the EPA will listen to our feedback. A few changes to 2010 $ 1.71 the combined rules would bring tremendous value, allowing us to 2011 Projected $ 1.84 achieve compliance without harming local and national economies. n Subject to Board of Directors approval Global warming continues to be a concern and one that mustbe addressed internationally. Our position on this issue has notchanged. No single country or company can solve it. It is our funda- technology be brought to maturity and demonstrated on a com-mental belief that the best way to address this issue is through inter- mercial scale if we want to maintain coal as an option in a carbon-national collaboration. That’s why in 2011 we signed agreements constrained world. When there is a federal requirement and/orwith two of China’s largest energy companies to support knowl- adequate funding to support CCS, AEP is up to the challenge. Butedge and technology exchanges related to carbon capture and grid without these assurances, the future of our project is very unclear.developments. We also believe that, here in the United States, the We need other options for coal, too. That’s why the John W.best way to address climate change is through legislation. Turk, Jr., ultra-supercritical coal plant under construction in south- The lack of a strategic energy policy also hampers the devel- west Arkansas is important. Once complete, this will be one of theopment and deployment of new and expensive technologies that most efficient coal plants in the United States. It is also the firstwe need to address climate change. Without a legislative mandate, application of this technology in this country.regulators are telling us loud and clear that they are not willing topay for them. AEP took the global lead and the financial risk to Balancing All Stakeholder Needsadvance carbon capture and storage (CCS) because this tech- We are engaged in candid, ongoing discussions with regulators,nology is critical if we are serious about reducing carbon dioxide legislators and many other stakeholders about our concerns. Theseemissions. But regulators in Virginia rejected our request to recover are difficult and complicated issues, and there are no easy solu-costs associated with the project. We are still evaluating a regulations. If we work together, we think the outcome can be positivetory decision on the project from West Virginia. We learned a lot for stakeholders, customers, the environment and society. Wefrom our 20-megawatt (MW) CCS validation project at the Moun- believe sensible regulation and policy can be crafted that balancestaineer Plant in West Virginia, enhancing our knowledge of the pro- the costs and benefits. If done right, it would create jobs and eco-cess and technology. But substantial financial challenges remain. nomic opportunity, achieve the long-term environmental goals, and Through a joint funding effort with the U.S. Department of spread the costs over time to avoid unnecessary financial hardshipEnergy’s Clean Coal Power Initiative Round 3, we have begun geo- for customers. We will continue to connect with our stakeholderslogic, engineering and design work for a commercial-scale 235- and seek their input as we move forward.MW project that could be operational by 2015. We also recently We are preparing to undergo a transformation that will signifi-received $4 million from the Global Carbon Capture & Storage Insti- cantly change our business. Our responsibility is to manage andtute in Australia to support engineering work. It is essential that this reduce our environmental impacts as we deliver reliable electricity 2011 AEP Corporate Accountability Report 3

Our 2010 earnings of $ 3.03 per share on anongoing basis were at the upper end of our AEP Chairman & CEO Mike Morrisprojected range and exceeded 2009 ongoing addresses the U.S.-China Strategicearnings per share of $ 2.97 . Our total share- Forum on Clean Energy Cooperationholder return was nearly 9 percent for 2010 . in Washington, D.C., in January 2011.to customers. We will increase our earnings potential as we invest steady, solid, competitive return in today’s marketplace.in our existing distribution and generation infrastructure and expand I am delighted that, twice last year, our board of directorsthe transmission grid inside and outside of our service territory. We voted to increase the quarterly dividend to shareholders. The totalwill do it by developing our work force to build, operate and main- quarterly dividend increase of 12 percent helped to keep our totaltain new technologies essential to our success. We also are com- shareholder return competitive and allowed us to reward our share-mitted to engaging our stakeholders in honest and open dialogue holders until our earnings growth can accelerate from increasedabout our plans while doing a better job of informing our customers capital investment and sales growth. It was a thrill to ring the clos-about the cost and value of electricity. ing bell at the New York Stock Exchange in June 2010 in celebra- Our business transformation touches every one of our oper- tion of AEP’s 400th consecutive quarterly dividend payment, a rareating companies, customers, shareholders, employees, communi- occurrence indeed. On March 10, 2011, we paid our 403rd con-ties, legislators and regulators. To be successful, we must continue secutive quarterly dividend to our shareholders.to deliver strong earnings this decade and beyond; we cannot meetour commitments unless we have the resources to do so. Operational Performance Operating more efficiently and adapting to the changing economic2010 Financial Performance and regulatory environment requires our work force to change, too.We achieved strong financial results last year, in part due to aggres- We reduced our work force by more than 2,400 employees in 2010sive cost cutting and favorable weather. We also rewarded our in a realignment of our cost structure with a slow but steady eco-shareholders with higher dividends. Our continued financial health nomic recovery. Most of those who left did so voluntarily.and ability to create long-term value for shareholders depends upon I am pleased to report that, despite this restructuring andour ability to transform our earnings as we transform our company. associated distractions, our overall safety performance was excel- As we shift our focus from coal generation to resource diver- lent. AEP employees share a deep commitment to safety andsity and the efficient delivery of energy through transmission and health and strive to live up to that commitment every day. I am pro-grid investments, we also will transform the earnings stream of the foundly grateful to our employees and our leadership for their dedi-company. That is our integrated plan for growth. cation to safety and health. No employee lost his or her life while The actions we took during the past two years put us on the working for AEP in 2010, fewer employees were harmed on the jobroad to slow and steady growth this year. Revenue increased to and the severity of injuries was at a near-record low. Our board of$14.4 billion from $13.5 billion in 2009, largely due to successful directors passed a resolution commending employees for perform-rate cases, which allowed for recovery of capital already invested ing at a level that was among the best in our company’s history.and for incremental costs such as fuel. Weather and a 5 percent We have made significant progress, but we can and will dorebound in industrial sales also helped revenues. better to improve our safety and health record. Three employees Operations and maintenance (O&M) expenditures for the en- lost their lives on the job during the past five years. We will not tol-tire system, on a Generally Accepted Accounting Principles basis, erate any compromise of safety standards, and we will continue toincreased $449 million in 2010. The increase primarily related to work hard to achieve and maintain zero harm.$293 million (pretax) of severance costs due to our cost reduc- Our environmental performance is excellent: We are a top per-tion initiatives and $114 million (pretax) of expenses associated with former in our industry by almost every measure. We are proud thatdollar-for-dollar rate recovery. Our capital investments of $2.2 billion this performance is outstanding for a utility of our size and scope.were down from almost $2.5 billion in 2009 as we responded to However, we fell short of our goal of zero environmental violations.regulator and customer concerns about rate increases. In 2010, we had three violations and paid minimal fines of less than Our 2010 earnings of $3.03 per share on an ongoing basis $10,000. As we learn from these events and take steps to preventwere at the upper end of our projected range and exceeded 2009 recurrences, our goal continues to be zero violations.ongoing earnings per share of $2.97. Our total shareholder return Our distribution system reliability improved in 2010. The aver-was nearly 9 percent for 2010, providing investors in AEP with a age length of time that customers were without power and the fre-4 A Message from the Chairman & CEO

www.AEPsustainability.com AEP Chairman & CEO Mike Morris and other AEP leaders ring the NYSE’s closing bell on June 3, 2010, in celebration of the company’s 400th consecutive dividend. AEP Total Shareholder Return 2005 12.3 % 2006 19.6 % 2007 13.1 % 2008 – 25.4 % 2009 10.4 % 2010 8.7 % quency of interruptions improved significantly, helping us to achieve critical global energy resource for the future.our best performance in five years. Our gridSMART ® initiative, un- Finally, a few personal notes. I have tried to prepare for theder way in four states, will transform our relationship with our cus- future since my first day here in 2004. We created an extensivetomers from one in which the customer uses power and gets a bill succession planning initiative to broaden the knowledge and skillsto one in which we work together to save electricity, lower energy of our executives and to ensure that the most qualified candidatedemand and consumption, and reduce customer costs. takes the helm when I step down as CEO. I am very proud that this Our transmission strategy to expand inside and outside of our process resulted in the board having external candidates and fourservice territory also moved forward. Among our successes were strong internal candidates from which to choose. The board namedthe establishment of transmission companies in Ohio, Michigan Nick Akins as president of AEP, and he will work closely with me thisand Oklahoma. Applications are pending in West Virginia, Kentucky year as I continue in the roles of chairman and CEO. If the succes-and Indiana. sion plan continues according to schedule, Nick will also become CEO later this year.Preparing for the Future Two long-time board members will retire this year, bringing yetWe all have a role in ensuring the quality of our energy future. We more change to our leadership team. We are most grateful for thebelieve that our customers want to use energy more efficiently, and dedicated service of Donald M. Carlton and E.R. “Dick” Brooks,in most of our service territories, programs and technology are both of whom have served since 2000. Prior to the 2000 merger ofhelping them to accomplish this goal. Moving forward, we want to AEP and Central and South West Corp. (CSW), Dick was CEO ofoperate our system more efficiently; diversify our fuel generation; CSW for nearly 10 years. Both board members have been passion-develop a more robust grid to enable the utilization of cleaner, more ate advocates for employee safety, our nuclear program and ourefficient and economic energy; and prepare for the electrification of company’s tradition of excellence in governance.the transportation sector. We are in a time of great transformation. Our vision for cleaner, We have many initiatives under way that position us to achieve more affordable and more reliable electricity is central to America’sthese goals. We will also work to prepare our regulators, employ- economic recovery and growth. As a nation, we must embraceees, customers and communities for the full impact of coal unit energy as a powerful engine for our country’s economic future; asclosings, new environmental mandates and the true cost of clean a company, we must strive continually to balance the needs of ourenergy. We are ready to listen to ideas they may have for solu- customers and shareholders with measurable benefits to the envi-tions to these complex problems. We will continue to communicate ronment and society. The men and women of AEP are making boldthese issues with our stakeholders and collaborate with them to changes that will lead us toward a more secure energy future; Ifind common ground and pursue common sense solutions. invite you to join us in leading this exciting transformation. We are saddened by the terrible loss of life and destructionassociated with the earthquake and tsunami that hit Japan in Sincerely,March. We are also concerned about the events at the FukushimaDaiichi Nuclear Station in northeastern Japan. Although all the les-sons to be learned are not yet known, AEP remains committed tolearn from these events and to operate our Cook Nuclear Plant to Michael G. Morrisone standard – “Excellence.” We also believe that it would be unfor- Chairman & Chief Executive Officertunate and inappropriate to discount nuclear energy as a viable and April 2011 2011 AEP Corporate Accountability Report 5

Leadership, Management & StrategyAn Integrated, Stakeholder-Informed Strategy trend to continue in 2011, we are taking steps through the regula-The connections between our environmental, financial and social tory process to address this while entering the competitive mar-performance are central to our strategy and to our thinking about ket ourselves. Our new AEP Retail Energy business has initiatedwho we are and what we do. The more we align and integrate our retail marketing efforts in our service territory as well as otheractivities in these three areas, the more successful we will be. service territories in Ohio. Read more about this in Public Policy. For more than 100 years, AEP has provided affordable, reliable Employee and other human-resource issues remain vitallyelectricity for our customers; steady, competitive returns for our important. We are focused on a strategy that ensures we canshareholders; and safe, rewarding jobs for our employees. While attract and retain the talent we will need to build, operate and main-doing so, we have worked to protect the environment and to sup- tain new technologies and interactive energy supply-and-demandport the communities in which we operate. systems, such as our gridSMART ® initiative. The link between our environmental and financial performance Our extensive stakeholder engagement process has helped tohas become much stronger and clearer to us during the past sev- inform our business strategy, and it has begun to produce syner-eral years. Environmental issues became a larger part of our risk gies and business opportunities for us. We are discovering thatportfolio, and our performance as a company began to be seen, many of the lines we had drawn separating financial from nonfinan-at least in part, in terms of our ability to address global climate cial strategies, activities and reporting are no longer relevant and,change. We have made major investments in environmental con- in some cases, are counterproductive.trols at many of our coal-fired plants, which have resulted in reduc- In response, we have worked to embed and integrate environ-tions in sulfur dioxide and nitrogen oxide emissions by about 80 mental and societal issues and performance into our strategy, ourpercent since 1980. While there is a clear environmental benefit, operations and our measurement and reporting systems. For ex-these investments have also led to major rate increases for our cus- ample, in our Engineering, Projects & Field Services organization,tomers. At the same time, we have led the way in testing and de- the annual business plan is based on our sustainability strategy, andploying new technologies that will make us more efficient, give cus- we’ve designed goal-setting and performance systems that em-tomers more control over energy use, enable modernization of the phasize the connection between each employee’s job and our com-grid and further reduce our environmental impacts. pany’s overall environmental, social and financial performance. AEP was presented with a new challenge in 2010. In Ohio,customers have had a choice for generation service since 2001, Strategic Transformationbut 2010 was the first year in which we have seen active retail mar- The ancient Greek philosopher Heraclitus said, “The only constantketing that targets our commercial customers. While we expect this is change.” He could have been describing the electric utility industry and AEP in particular. We are in the midst of a fundamental transformation, including:Construction continues on the John W. Turk, Jr., coal plant, which is scheduled Our operations are increasingly integrated: Our operating com-to begin operations in 2012. pany presidents are responsible for business performance across generation, transmission and distribution. Consequently, these business units are working more closely and sharing goals and accountability for overall performance at the operating company level. The company presidents are actively involved with resource planning, cash flow, balance sheets, income statements and stakeholder relationships. This business model allows the company presidents to align investment decisions with financial, regulatory and operational priorities and to manage our social and environmental performance in an integrated fashion. Our fuel mix is changing: We are a coal-centric electric utility, but6 Leadership, Management & Strategy

www.AEPsustainability.comThe ancient Greek philosopher Heraclitus said, “The only constant is change.”He could have been describing the electric utility industry and AEP inparticular. We are in the midst of a fundamental transformation.that is changing. We plan to invest in cost-effective environmental employee tool for providing that assurance. We also communicateretrofits of larger, newer coal-burning units and retire older, smaller with employees regularly about ethics and compliance via e-mails,units. We eventually will build more natural gas generation, similar videos, the company’s intranet and a dedicated ethics and compli-to the 508-megawatt (MW) J. Lamar Stall combined-cycle gas unit ance blog for employees. Read more about the culture of ethicsin Louisiana, which began operating in 2010, and the 580-MW and compliance in Work Force.Dresden combined-cycle gas plant under construction in Ohio. We have a deep commitment to succession planning and dur-We are completing the ultra-supercritical John W. Turk, Jr., Plant ing the past five years, several senior executives were given differ-in Arkansas. ent assignments to expose them to all aspects of the company’sTechnology is changing: We continue to explore different and new operations. This process resulted in four internal executives beingtechnologies that could play a pivotal role in how electricity is pro- considered by the board of directors as potential candidates toduced, distributed and used. Our gridSMART ® projects in Ohio, succeed Mike Morris as president and CEO of AEP.Texas, Oklahoma and Indiana are giving us practical experience in In late December, after reviewing internal and external can-smart grid technologies, from energy storage and distributed gen- didates, the board appointed Nick Akins, who previously led oureration to smart meters and voltage control. While we are learning Generation business, as president of AEP. If the succession plana lot about these technologies, customers have yet to fully under- continues on schedule, the board will name Nick CEO later thisstand how to take advantage of them. We will pursue the deploy- year. Until then, he will work closely with Mike and with Vice Chair-ment of smart grid technologies where regulators are supportive. man Carl English.Our culture is changing: We strive for openness, candor and trust The board’s Committee on Directors & Corporate Governancein all areas, especially as they relate to safety and health. For ex- has oversight over this report and provides input and guidanceample, when job conditions change, employees know they must to management on selected issues. The board holds manage-stop and re-evaluate the risk. We have not yet achieved the level ment accountable for sustainability and financial performance, asof openness we strive for, but the change in our culture has been described in a board statement that is published every year in thissignificant. Read more about this in Stakeholder Engagement. report. The board receives semiannual updates on our progress,Our values continue to guide us: Our values of safety, fairness, although discussion occurs throughout the year.trustworthiness, responsibility, citizenship, respect and caring con- Our efforts to make AEP a leader in corporate governancetinue to commit us to high standards of ethics and quality. Even were recognized in 2010 when AEP was named one of the 20as our strategies and operations evolve in order to help us remain “Most Responsible Corporations” in the United States by Gov-successful, our core business mission and objectives are the same ernanceMetrics International. The ranking was based on boardas they have always been. accountability, internal controls, shareholder rights, remuneration,Changes in Leadership, Governance & Management AEP President Nick Akins and other corporate governanceOur leadership and management structure also is in transition. codes and principles. AEP wasLeadership takes many forms. One of them is the ability to deal specifically cited for its extensiveeffectively with change by having vision, setting a clear direction, reporting on environmental andaligning human and financial resources, and motivating people to social performance.move forward. We believe that AEP is fortunate to have a leader-ship team that is prepared to deal with today’s enormous changes. Risk Management Our conduct is guided by our Principles of Business Conduct, AEP faces a variety of risks relatedwhich require us to operate with integrity, fairness, respect and to environmental and other publiccare. We seek to foster an environment in which employees know policy issues, safety in the work-their concerns are addressed respectfully, confidentially and in a place, grid security, financial andtimely manner. Our “24/7” confidential ethics hotline is an important operational performance, and 2011 AEP Corporate Accountability Report 7

other matters that could affect the company’s competitiveness or the Kleen Energy Plant natural gas explosion in Connecticut, wereputation. Effective risk management enables us to respond and reviewed the startup procedure for the new J. Lamar Stall naturaladapt quickly and effectively in the rapidly changing environment gas plant to ensure that safety zones were properly established.described in this report. We developed a template for this review that we will use to conduct We continuously examine our levels of acceptable risk based similar inspections at all of our gas plants.on changes in the internal and external operating environment We benchmark our business continuity plans against thoseand on specific circumstances. We weigh the potential impact of of our peers, recently using the Edison Electric Institute Busi-various risks on our financial health and reputation and on our abil- ness Continuity Benchmark survey. This year, we plan to focusity to comply with legal and regulatory requirements. Our manage- on improving our business leaders’ understanding of their roles inment team and board of directors discuss these issues and weigh business continuity activities, refreshing existing plans, improvingour risk management options on an ongoing basis. communication capabilities and setting a five-year road map for Our Enterprise Risk Oversight group develops and applies continuous improvement.enterprisewide risk management tools. It gathers and analyzes We are also taking a closer look at our disaster recoveryrisk-related information from business units and reports to the Risk systems, which emphasize recovery of technology systems if weExecutive Committee and the Audit Committee of the board of were to experience a catastrophic failure. AEP maintains a 24/7directors. This enables management and the board to understand, IT Disaster Recovery Center that makes it possible for us to con-evaluate and respond to the significant risks facing the company. tinue operations in the event of a disaster. Although our disaster Our Risk Executive Committee meets regularly to monitor the recovery infrastructure is continuously monitored and is in a statematerial and emerging risks facing the company. It reviews and of readiness, we will analyze the recovery prioritization of businessevaluates the response to these risks and will request risk mitiga- processes to ensure those priorities reflect today’s business envi-tion from business unit leaders, if necessary. ronment and needs. Risk management occurs at all levels of AEP. Individual busi-ness units are responsible for identifying, analyzing and assess- Stakeholder Engagement & Material Issuesing their risks and for implementing appropriate risk management A sustainable business strategy is one that is informed, engagedcontrols. For example, we manage fuel inventory and purchases to and forward looking. The dialogues that inform our decision makingbalance supply needs with the ability to secure regulatory recov- and long-term strategic view often result in collaborative efforts thatery of fuel costs at each power plant. This localized approach to are good for people, the environment, the economy and sharehold-risk management reduces the likelihood that a power plant will run ers. We conducted or participated in nine stakeholder meetingsshort of fuel and reduces risk to our shareholders and customers. during 2010 that provided us with insights about a wide range of In 2010, we began to track our sustainability commitments in issues that are important to us, our customers and our industry.relation to the company’s material risks. When reporting progress, These meetings helped shape this report. For a description of ourbusiness units are asked to identify actions that may create risks material issues, visit www.AEPsustainability.com.for the company. This ensures alignment of goals and actions andhelps to identify emerging issues and trends. It also helps to informgoal setting and decision making. Scope of This Report Business readiness for high impact/low probability events has This is our second integrated report, combining information aboutalways been important, but it came under increased scrutiny in the our financial performance with data on our environmental, social andwake of the Deepwater Horizon oil leak in the Gulf of Mexico, the governance performance. It also is the fifth year we are reporting onUpper Big Branch mining disaster in West Virginia and the nuclear our sustainability performance. We are committed to an integratedcrisis in Japan. reporting approach because it gives a complete picture of how we AEP has business continuity and disaster recovery plans in operate, the decisions we make, the positions we take, our engage-place. Every business unit has a business continuity plan specific ment with stakeholders and the consequences of our actions.to its needs that addresses people, processes, property and other Information contained herein is largely based on calendar yearfactors. For example, we have plans to respond if a pandemic were 2010, with exceptions for some early 2011 data as noted. Support-to cause widespread employee absences and supply disruptions, ing information can be found on our dedicated sustainability web-which would affect our ability to serve our customers. site at www.AEPsustainability.com or on our corporate website at In our Fossil/Hydro unit, we use predictive maintenance tech- www.AEP.com.nologies such as vibration analysis and infrared thermography tohelp identify the potential for equipment failure in our power plants.In addition, we monitor industry experience to develop proac-tive approaches to minimizing our risks. For instance, following8 Leadership, Management & Strategy

www.AEPsustainability.comAEP Board of DirectorsMichael G. Morris Ralph D. Crosby, Jr. Lionel L. Nowell III Sara Martinez TuckerAge 64; Elected 2004 McLean, Va. Cos Cob, Conn. San Francisco, Calif.Chairman & Chief Executive Officer Age 63; Elected 2006 Age 56; Elected 2004 Age 56; Elected 2009E, P Chairman & retired Retired Senior Vice President Former Undersecretary, Chief Executive Officer, & Treasurer, U.S. Department of Education,E.R. Brooks EADS North America, Inc. PepsiCo, Inc. and former President &Granbury, Texas H, N, P A, D, E, F, P Chief Executive Officer,Age 73; Elected 2000 Hispanic Scholarship FundRetired Chairman & Linda A. Goodspeed Dr. Richard L. Sandor A, D, PChief Executive Officer, Franklin, Tenn. Chicago, Ill.Central and South West Corp. Age 49; Elected 2005 Age 69; Elected 2000 John F. TurnerA, F, P Vice President, Former Chairman, Chicago Moose, Wyo. Information Systems, Climate Exchange, Inc. Age 69; Elected 2008Dr. Donald M. Carlton Nissan North America E, F, P Managing Partner,Austin, Texas A, N, P Triangle X Ranch, andAge 73; Elected 2000 Dr. Kathryn D. Sullivan former Assistant Secretary,Retired President & Thomas E. Hoaglin Columbus, Ohio U.S. State DepartmentChief Executive Officer, Columbus, Ohio Age 59; Elected 1997 A, N, PRadian International, LLC Age 61; Elected 2007 Director, Battelle Center forH, N, P Retired Chairman & Mathematics & Science Committees of The Board: Chief Executive Officer, Education Policy, John Glenn The chairman is listed in ( ).James F. Cordes Huntington Bancshares, Inc. School of Public Affairs, A – Audit (Nowell)The Woodlands, Texas D, E, H, P The Ohio State University D – Directors and CorporateAge 70; Elected 2009 F, N, P Governance (Hoaglin)Retired Executive Vice President, Dr. Lester A. Hudson, Jr. E – Executive (Morris)The Coastal Corp. Charlotte, N.C. F – Finance (Sandor)D, H, P Age 71; Elected 1987 H – Human Resources (Hudson) Professor, McColl School N – Nuclear Oversight (Sullivan) of Business, Queens P – Policy (Carlton) University of Charlotte D, E, H, PLeft to right: Lionel L. Nowell III, Dr. Richard L. Sandor, James F. Cordes, Sara Martinez Tucker, E.R. Brooks, Dr. Donald M. Carlton, Linda A. Goodspeed, ThomasE. Hoaglin, Michael G. Morris, Ralph D. Crosby, Jr., Dr. Kathryn D. Sullivan, Dr. Lester A. Hudson, Jr., and John F. Turner. 2011 AEP Corporate Accountability Report 9

The Business of Sustainability A View from Two Members of AEP’s Board of Directors A company’s governance and its environmental and social per- stands what it takes for a company to have sustainable success. formance are increasingly linked to the bottom line. In fact, in In our case that includes financial performance because that’s many instances the distinction between financial and nonfinan- what our investors demand. At the board level, it starts by select- cial information is disappearing. A wide variety of stakeholders, ing the right CEO, making sure the organization has a good suc- including shareholders, financial analysts and rating agencies, cession plan, ensuring the organization has a strategy that can are working to understand the potential impacts of environmental yield, over time, success that is sustainable, and overseeing the and social issues on core business functions. Many consider the company’s risk management processes. Increasingly, however, distinction between financial and nonfinancial information to be factors such as adherence to environmental needs and regula- artificial and counterproductive in this effort. tions, safety issues and the reliability of operations contribute to AEP is very familiar with this evolution. Electricity is vital to the financial success of the organization. Without focus on those quality of life and is the nexus of societal needs and consider- issues that are so important to sustainable results, you only have ations that include public policy, environmental performance, half a loaf. And I think that’s why our board is so fundamentally financial health, operational reliability and economic prosperity. aware of and committed to the importance of sustainability. We take these responsibilities very seriously and know that they These topics are discussed regularly in full board meetings and are interdependent. in most committee meetings. The convergence of financial and nonfinancial performance has created a dynamic and more complex portfolio of Lionel Nowell: Without question, the board is committed to AEP risks and opportunities that is getting closer scrutiny throughout being a responsible corporate citizen and embraces sustainabil- the company, including in the board room. We asked two AEP ity as a core value and operating principle. We believe that having board members to share their views on these issues. Read the a self-regulating mechanism helps the company ensure that its full interview online at www.AEPsustainability.com/ourissues/ business practices reflect responsibility for, and are in compli- strategymgmntgov.aspx. ance with, environmental, social and economic standards, which is the right thing to do and a prerequisite for success. Through Tom Hoaglin is chairman of the board’s Committee on Directors discussions held at the Committee on Directors and Corporate and Corporate Governance, which has oversight of AEP’s Cor- Governance and subsequent full board meetings, we address porate Accountability Report. He is the retired chief executive of actions being taken by the company relative to our sustainabil- Huntington Bancshares in Columbus, Ohio, and has served on ity commitments, and review appropriate data to ensure those AEP’s board since 2007. actions have a positive impact on our shareholders, our customers, our employees, the environment and other stakeholders. Lionel Nowell is chairman of the board’s Audit Committee. He is Recent studies suggest equity analysts are starting to issue the retired senior vice president and treasurer of PepsiCo Inc., of more favorable ratings to companies that exhibit exemplary cor- Purchase, New York. He has served on AEP’s board since 2004. porate social responsibility practices in the same manner as financial performance. Furthermore, the board promotes the in- How is sustainability discussed and considered at the clusion of public interest into our decision-making process by board level? voluntarily eliminating business practices that are not consistent with our sustainability objectives. As a result, concern about sus- Tom Hoaglin: It is important that our board – any board – under- tainability influences our thinking and helps to shape our actions. Thomas E. Hoaglin10 Leadership, Management & Strategy

www.AEPsustainability.comLionel L. Nowell IIIAEP invests significant time and energy engaging with developing a framework for constructively examining our riskshareholders and many other stakeholders. What’s the assumptions so we can better understand how unexpectedboard’s perspective on this process? events could affect AEP. We also evaluate whether potential unanticipated events are real threats, potential opportunities, orTom Hoaglin: Within our industry there is an instinctive aversion both. Our overall objective is to avoid blind spots by being moreby some company executives to working with stakeholders such proactive. So we have put in place a dynamic risk review pro-as environmental groups. Yet, I have been so impressed with cess, stewarded by the Audit Committee but owned by the fullAEP’s approach, as I think the whole board has, that we rec- board, which allows us to create a portfolio of strategic optionsognize the importance of this engagement. We encourage and that prepares the company to be both resilient and responsive tosupport management’s efforts to reach out to these constituen- threats and open and agile enough to seize upon opportunities.cies, make themselves accessible, keep lines of communication The board is fully and fundamentally aware of AEP’s respon-open and listen to their viewpoints and consider them in deci- sibility to comply with laws and regulations and to deliver energysion making. We may not always agree, but their point of view is to our customers in the most efficient manner. We are alwaysimportant to us. I think we are all aware that our generation fleet looking to develop a competitive advantage in managing andwill migrate, over time, to being less coal-centric, but we have to operating the company. Although this is a company with growthdo it at a pace that is digestible for regulators and our customers. potential, our ongoing risk will be our ability to achieve everythingThe way to get the optimal pace and plan includes making sure we have to do in a way that will meet the desires of our stake-we hear the points of view from all of our stakeholders. holders while creating value for our shareholders.Lionel Nowell: I agree with Tom. The common thread is having Tom Hoaglin: AEP has a very organized, disciplined approachconstructive, open and honest communication. We want to col- within its executive ranks to manage risk, which has servedlaborate and have a dialogue because that helps us to come up us very well. The board itself is not directly involved in manag-with solutions that can be mutually beneficial to all concerned ing the company’s risks; our role is to oversee the processesparties. And I believe the effectiveness of our approach is sug- management uses to manage risks. The management team isgested by our success in the regulatory arena and the fact that responsible for identifying short- and long-term risks facing thewe received no shareholder resolutions this year. Ultimately, our organization and for assigning responsibility and accountabilityongoing challenge is to help all of our stakeholders, including for managing and mitigating those risks. Each of the board’sour shareholders, understand that we have to work together and committees is assigned the appropriate risks to oversee in con-respect each other’s goals and objectives if we are going to be cert with management. We receive regular updates to ensureeffective in delivering safe, reliable and affordable electricity to that the risks we all agreed upon are getting the right attentioncustomers and fair returns to our shareholders while meeting our and are being mitigated. And that’s what our investors wouldsocial responsibilities. expect and require, and I think all stakeholders would expect that. After all, a company that manages risk successfully is likelyRisk assessment and risk mitigation have become in- to have fewer blips along the way and deliver a much higher levelcreasingly high priorities for many companies, including of performance.AEP. What is the board’s role in risk management? Read more about the board’s view of ethics, compliance andLionel Nowell: Risk oversight is one of the top priorities for both board independence online at www.AEPsustainability.com.the board and AEP management. While we have always focusedon risk, we’ve taken additional steps to improve the process by 2011 AEP Corporate Accountability Report 11

Earnings Per Share ( GAAP ) Total Debt / Capitalization ( GAAP ) 2008 $ 3.43 2005 57.2 % 2009 $ 2.96 2006 59.1 % 2010 $ 2.53 2007 60.7% 12% 2008 62.5 % 57.2 % total quarterly 2009 2010 57.0 % dividend increase in 2010Business Performance: FinancialA financially strong and responsible company is one that deliv- able cost. This allows us to continue to invest low-cost debt capital ers profits to its shareholders, meets its commitments to its into our critical electric infrastructure to better serve our customers. lenders and provides benefits to society. The actions we We must prioritize our spending to secure solid investment-grade have taken during the past two years put AEP in a posi- ratings by striking the right balance between the cost of operationstion to do all three. Being financially strong allows us to deliver on and these financial objectives.our social and environmental commitments. Improving our environ- Our board of directors approved two shareholder dividend in-mental and social performance helps us to increase our financial creases in 2010, which resulted in a total quarterly dividend increasestrength. We believe that our strategy and approach provide value of 12 percent. This provided shareholders additional cash return onfor shareholders, stakeholders and society. their invested capital during a period when the company was expe- The sluggish economy was a factor in both business and poli- riencing lower sales and earnings growth than in pre-recessiontics. Decreased demand for electricity from the highs of 2007 periods. This improvement in the dividend increased our payoutand 2008, regulatory delays and environmental challenges com- ratio to nearly 60 percent, which is at the upper end of our targetedpelled us to rethink how we manage our operations and where we payout ratio of 50 percent to 60 percent.make our investments. Regulators also demonstrated that they are AEP reached a milestone in June 2010 when it paid its 400thunwilling to approve rate increases for some renewable and envi- consecutive quarterly dividend. We are proud to have paid a divi-ronmental initiatives without a legal mandate to do so. Virginia and dend every quarter since mid-1910, which, according to our re-Kentucky regulators did not allow us to include renewable energy search, is an achievement only a few U.S. companies can claim.contracts in our rates, for example, citing cost as the main factor. Our record shows that management and the board of directors are Our actions to bolster our financial health during the past two committed to providing shareholders an important part of their totalyears helped to pave the way for long-term sustainable growth. Our return proposition through a cash dividend.goal is always to efficiently convert the capital investments we make Total shareholder return is an important performance metric.to better serve our customers and to deliver earnings for our inves- For 2010, our total return was approximately 8.7 percent, exceedingtors. Throughout AEP, we reduced our cost structure and brought the S&P 500 Utilities Index by more than 3 percentage points andmore discipline to operations and maintenance (O&M) and capital making an investment in AEP a stable and competitive return prop-spending. Through this discipline, we were able to improve our bal- osition accompanied by a low risk profile and steady performance.ance sheet and maintain adequate liquidity through the renewaland extension of a $1.5 billion bank facility. 2010 Consolidated Results Our credit ratings are at the investment grade level (BBB/Baa2/ AEP’s ongoing earnings for 2010 amounted to $1.45 billion, anBBB), which provides adequate access to debt capital at a reason- increase of nearly $90 million over our 2009 results. On a per-share12 Business Performance: Financial

www.AEPsustainability.com403 Ongoing Earnings Per Share History Compound Annual Growth Rate = 4.1% ( $ /share ) $ 2.33 $ 2.73 $ 2.77 $ 3.00 $ 3.24 $ 2.97 $ 3.03 $ 3.10number of consecutive quarterly dividends paid through March 2011 2004 2005 2006 2007 2008 2009 2010 2011 ForecastWe expect our earnings to grow at a rate of 4 percent to 6 percent over the 2012 to2014 time frame, underpinned by capital investments in our utilities leading to ratebase growth, continued increases in sales and the ability to earn competitive returnson equity in our operating companies.basis, 2010 ongoing earnings were $3.03, up $0.06 from 2009 lion. This was due in part to the winding down of our initial programresults of $2.97.1 At the end of 2010, AEP had 481 million common of mandated environmental retrofits at our power plants related toshares outstanding, an increase of 3 million shares from 2009. the Clean Air Act Amendments of 1990 and the Clean Air Interstate Our balance sheet showed continued strength in 2010, as Rule. Environmental expenditures were still substantial, at $303our debt-to-total-capitalization ratio decreased to 57 percent, the million in 2010. The biggest area of capital spending was in our Dis-lowest debt-to-total-capitalization ratio that we have recorded for tribution business unit, where $808 million was invested in projectsseveral years. During the year, we accessed the capital markets related to customer service and reliability.for nearly $1.6 billion in debt, both short- and long-term, and in The ongoing recession made AEP’s contribution to local econ-June 2010, we renewed one of our $1.5 billion credit facilities for a omies more important than ever in 2010. We are among the largestthree-year term that is supported by a strong, diverse bank group. employers in the communities where we operate, and the taxesOur liquidity position remains strong and our credit metrics showed we generate are a major source of revenue to those communities.improvement during the year as well. AEP and its subsidiaries have AEP paid almost $1.2 billion in federal, state and local taxes in 2010stable outlooks from the rating agencies, with the exception of and employed nearly 19,000 people. Our annual payroll is moreactions taken with respect to the merger of Ohio Power and Colum- than $1.8 billion and positively impacts families, communities andbus Southern Power. economies in our service area. In 2010, we voluntarily contributed $500 million to our qualifiedpension plan, increasing the funding level to about 80 percent. Thiscontribution reduced our underfunded pension liability by approxi- Liquidity Summary ( in millions )mately 10 percent. We plan to voluntarily contribute an additional Amount* Maturity$158 million to the plan in 2011 and continue to examine ways to Revolving Credit Facility $ 1,454 April 2012 Revolving Credit Facility $ 1,500 June 2013reduce risks through asset allocation and risk management. Revolving Credit Facility $ 478 April 2011 Investing capital at levels that exceed our annual rate of depre- Total Credit Facilities $ 3,432ciation increases our earnings potential. Our capital investments Plusin 2010 totaled $2.2 billion, down from nearly $2.5 billion in 2009. Cash and Cash Equivalents $ 294This exceeded our annual depreciation of $1.29 billion but was Lesslower than our capital improvements in 2009 by nearly $250 mil- Commercial Paper Outstanding ( $ 650 ) Letters of Credit Issued ( $ 601 )1 2010 GAAP Net Income of $1.21 billion ($2.53 per share) compared with 2009 Net Available Liquidity $ 2,475 GAAP Net Income of $1.36 billion ($2.96 per share). * Actual Dec. 31, 2010 2011 AEP Corporate Accountability Report 13

69% Utility Revenues by Class ( in millions ) 2008 $ 4,267 2008 $ 2,954 2009 $ 4,405 2009 $ 2,630 2010 $ 5,125 2010 $ 2,840 Residential Industrialshares owned by 2008 $ 3,116 2008 $ 2,748 institutional investors 2009 $ 3,171 2009 $ 1,849with at least a two-year 2010 $ 3,406 2010 $ 1,993 investment horizon Commercial WholesaleUtility Operations covery of $114 million (pretax) were primarily offset by last year’sUtility Operations represents the generation, transmission and work force reductions and other cost-cutting efforts as well as lowerdistribution of electricity for U.S. retail and wholesale sales and ac- storm restoration expenses. This flat O&M clearly demonstrated ourcounted for 98.5 percent of AEP’s ongoing earnings in 2010. The commitment to financial discipline and efficient spending.subsidiaries within utility operations earned a respectable 10.76 per-cent return on equity (ROE) in 2010. AEP River Operations The Utility Operations’ ongoing earnings increased $110 mil- The AEP River Operations segment of our business ships coal andlion, from $1.32 billion in 2009 to $1.43 billion in 2010. Favorable dry bulk commodities mainly on the Ohio, Illinois and lower Missis-rate changes and hotter and colder weather throughout our service sippi rivers and is one of the largest full-service dry-bulk carriersterritory, as well as cost reduction efforts, were largely responsible in the nation. We own or lease 2,581 barges, 45 towboats and 26for the increase. harbor boats to support this business. This does not include the Rate changes contributed favorably to 2010 ongoing earnings 672 barges and 17 towboats dedicated exclusively to transportingby $222 million (pretax), net of offsets. These rate changes came coal to our power plants. In 2010, we delivered nearly 72 millionfrom multiple jurisdictions in our service territory and primarily rep- tons of cargo, including more than 33 million tons of coal for ourresent rate increases from capital investments made in generation, own power plants.transmission and distribution across our 11 states. Competition within the barge industry for major commodity Weather, which can have a positive or negative impact on re- contracts is strong; there are a number of other companies oper-sults in any given year, helped us in 2010. Throughout our service ating on the same waterways. Ongoing net income decreased toterritory, we benefited from a colder winter and a hotter summer $40 million in 2010 from $47 million in 2009 primarily due to thethan in 2009. Favorable weather contributed about $229 million continued weakness in the import market, which lowered freight(pretax) from the prior year to our ongoing earnings. demand and rates. Last year was a period of steady economic recovery for ourservice territory, primarily in the industrial sector. Industrial cus- Generation & Marketingtomers were hit the hardest in late 2008 and 2009 but provided Our Generation and Marketing segment includes a competitivethe biggest sales volume boost in 2010, recovering 5 percent. The power supply and energy trading and marketing business andrebound occurred across all of our top 10 industrial sectors, with no regulated assets. This business unit operates primarily in theprimary metal manufacturing leading the way. This suggests that Electric Reliability Council of Texas region and, to a lesser extent,the effects of the recession are starting to loosen, and we are opti- in the PJM and MISO transmission regions 2. Ongoing net incomemistic that recovery will continue in 2011. Residential and commer- declined to $25 million in 2010 from $41 million in 2009, primar-cial sales volumes for 2010 were essentially unchanged from the ily due to reduced power prices and trading margins. In 2010, weprior year on a weather-normalized basis. We hope that as we see began operating a retail energy business in Ohio to sell competitivecontinued improvement in the industrial sectors, including the cre- power in the deregulated areas. Read about this in Public Policy.ation of new jobs, we also will see increased growth in residentialand commercial demand. 2 PJM Interconnection is the regional transmission operator that coordinates the Ongoing O&M expenses for the Utility Operations segment in movement of wholesale power in all or parts of 13 states and the District of2010 were essentially flat with 2009, up just $17 million to $3.43 Columbia. The Midwest Independent System Operator (MISO) serves 13 statesbillion. Increased expenses associated with dollar-for-dollar rate re- in the Midwest and the Canadian province of Manitoba.14 Business Performance: Financial

www.AEPsustainability.com $1.2Capital Expenditures ( in millions ) expenses about $34 million less than in 2010. billion We expect employment to remain near 19,000. $ 2,900 We increased our 2011 capital budget to $2.6 billion, about $370 million more than our capital spending in 2010, reflecting our confi- $ 2,615 dence in the continued economic recovery and$ 2,487 the need to invest in our utility platform. Trans- mission expansion is a key component of our growth strategy: We plan to invest almost twice $ 2,243 federal, state and local as much capital in transmission growth and enhancements as we did in 2010, an estimated taxes paid in 2010 $707 million (including equity contributions to our joint ventures) compared with $378 million in 2010. We expect that 2011 is the year we start Other Business Operations “putting steel in the ground” through our regu- All other business operations recorded a loss of lated transmission companies in some of the $43 million on an ongoing basis for 2010 com- states we serve. pared with a $47 million loss for 2009. Favorable In addition to transmission growth, inves- tax adjustments helped to offset a contribution tors want certainty around our operations in to the AEP Foundation and a fleet lease buyout. Ohio, which recently contributed approximately 40 percent of AEP’s earnings. In January 2011, 2011 Outlook & Beyond we filed a 29-month Electric Security Plan for The nation’s economic recovery has been more our Ohio companies along with a plan to merge sluggish than expected, but we see signs of Ohio Power and Columbus Southern Power. improvement in the slow but steady increase in We are confident in our plan for Ohio, which is electricity demand. We forecast a 1.7 percent centered on jobs, economic benefits and invest- retail sales increase in 2011, led by continued ments in the state. We believe the end result of recovery in the residential and industrial seg- this critical proceeding will be positive for the ments, even as commercial sales continue to state, our customers and our company. Read struggle. Our ongoing earnings guidance for more about the issues in Ohio in Public Policy. 2011 has been set at $3.00 to $3.20 per share. In the face of significant changes in our The midpoint of this range is an increase of operating environment, we are prepared to con- roughly 2 percent from 2010 results. We have E stimated E stimated duct business differently and continue our trans- also set a midpoint estimate of 2012 earnings at A ctual A ctual formation. Our plan is to seek the regulatory, $3.25 per share, an increase of 4.8 percent from legislative, customer and investor support that the midpoint of our 2011 guidance. 2009 2010 2011 2012 We expect our earnings to grow at a rate such a transformation requires. Our goal is to maintain O&M cost discipline to keep customerInvestment levels greater than of 4 percent to 6 percent over the 2012 to 2014depreciation of $1.3 billion per year cause costs low. For the capital we invest for improved time frame, underpinned by capital investmentsrate base growth in 2011 and 2012 customer service, including mandated environ- in our utilities leading to rate base growth, con- mental investments, we seek to efficiently con-n AEP Transco tinued increases in sales and the ability to earn vert these investments into earnings, which willn JV Equity Contributions (net) competitive returns on equity in our operat- provide competitive returns to our investors. Wen AEP River Ops & Other Non-Utility ing companies. After 2014, we expect slightly also plan to allocate additional capital to trans-n Environmental increased growth prospects due to our plan to mission, which allows for higher growth oppor-n New Generation grow our transmission business through the tunities and cash flow. We are committed to an Corporate / Other addition of wholly owned transmission compa- plan that allows for steady growth alongside an Nuclear Generation nies within our service territory and joint venture solid, reliable dividend.n Distribution opportunities outside of our territory. We will continue to be disciplined about For the complete audited, consolidated financialn Transmission statements, see Appendix A to the Proxy Statementn Fossil & Hydro Generation O&M spending despite increases in labor and at www.AEP.com/investors.n Unallocated employee-related benefit costs, projecting 2011 2011 AEP Corporate Accountability Report 15

284 milesof transmission lines already approved for Texas CREZ project 4,181 megawatts 5.3 million of nominal natural gas capacity added to the AEP system since 2005 approximate number of AEP customersBusiness Performance: Energy Security, Reliability & GrowthR eliability, security and the ability to meet increased demand ability measures that we track continuously. Our performance in for energy are critical issues for us, our industry, our stake- 2010 was very good in two of three metrics we track. holders and society. Our ability to meet growing demand The first metric is the System Average Interruption Duration and to deliver energy reliably from secure sources depends Index (SAIDI), which measures the average length of time a cus-on a mix of economic, environmental and social factors. tomer is without power during an outage. The three-year average We are dealing with aging infrastructure, enhanced grid secu- (2008-2010) improved 1.7 percent over the previous three-year roll-rity concerns, the need to develop and pay for new technology, new ing average (2007-2009). In 2010, our three-year SAIDI average wasenvironmental regulations that threaten the viability of older gen- 194.7 minutes – our best performance in five years. The improve-eration assets, and community concerns about siting new facilities ment can be traced to better maintenance in circuit sections of the– all of which require a strategy that takes financial, environmental system with high customer density/counts, also known as feederand social concerns into account. We are committed to finding the breaker zones, and more effective use of approved tree trimmingright balance to meet the needs of our stakeholders and to remain procedures. Approximately 30 percent of SAIDI is caused by treea sustainable organization. limbs falling on or getting tangled in power lines. The second key reliability metric is the System Average Inter-Measuring Our Performance ruption Frequency Index (SAIFI), which represents the averageOur system was tested by weather extremes in 2010, but we were number of interruptions experienced by a customer. At the end ofable to respond accordingly. An unusually cold winter and hot sum- 2010, the three-year rolling average of SAIFI was 1.397 comparedmer across our service territory pushed demand up and required all with 1.471 in 2009, an improvement of 5 percent. This also was ouravailable units to be operational. best performance in five years. Our peak demands are highest during the cooling season. The third metric is the Customer Average Interruption DurationIn 2010, cooling degree days were up 17 percent throughout the Index (CAIDI), which represents the average length of time to restoreAEP system from 2009. By contrast, heating degree days were up service once an outage occurs. Our performance on this measureonly 9 percent. Cooling degree days are the number of degrees did not meet our expectations, as CAIDI increased nearly 3.5 per-that a day’s average temperature is above 65 degrees Fahrenheit, cent in 2010 compared with the 2009 three-year rolling average.prompting greater use of air conditioning. The one exception is CAIDI was negatively impacted by the work force restructuring. WeTexas, where the measure is 70 degrees. Each degree above this will monitor our performance and staffing levels very closely.temperature results in an additional cooling degree day. The sameis true in reverse for heating degree days. Complying with Reliability Standards The duration and frequency of power outages are basic reli- New security and reliability standards arose from the 2003 blackout16 Business Performance: Energy Security, Reliability & Growth

110 www.AEPsustainability.com Southwestern Electric Power thousand Co. uses a mobile substation that it can quickly position in the event of a substation failure. In October 2010, this unit helped restore power to more than 4,500 customers within 24 hours. smart meters installed in OhioAs the economy improves, demand for electricity will naturally increaseand could create unbearable pressure on the existing infrastructure.We urgently need to modernize the grid.that affected much of the Northeast. The North American Electric recession, we were forced to alter or delay replacement and someReliability Corp. (NERC) requires utilities to be audited on compli- maintenance. These aging assets could pose a reliability risk acrossance with these standards. Later in 2011, AEP will undergo its first our system and potentially affect customer satisfaction, regulatoryaudit of the standards, known as Critical Infrastructure Protection. oversight and our reputation. In late 2006, we created a reliability compliance program Often we don’t know a failure has occurred until a customergoverned by an executive-level Reliability Compliance Committee reports it. Our inability to be more proactive results in additional(RCC) to assure coordination throughout every business unit. We customer outages and increased repair costs. We are discussing aare investing significant financial and human resources to ensure preventive maintenance approach with our regulators. We are con-compliance. The RCC had developed a companywide approach, sidering seeking incremental rate increases, dedicated to modern-working internally and collaborating externally, to identify and izing the grid, in all rate cases going forward. This will help us toimplement leading practices. We are not hesitant to bring potential issues forward to NERC, Smith Mountain Lake, nearthe agency responsible for compliance. We want to foster a culture Roanoke, Va., is one of the nation’s largest pumped storageof compliance that motivates employees to report incidents of non- facilities. It recently received acompliance, such as shortcomings in record keeping, without fear 30-year license extension. Theof retribution. nearby Claytor Lake facility is up for relicensing in 2011.Reliability IssuesMuch of our equipment that produces and delivers electricity isold and in need of modernization. As revenues declined during theThree-Year Rolling Average Systemwide Reliability Performance 2006 2007 2008 2009 2010SAIFI* 1.526 1.548 1.526 1.471 1.397SAIDI** 203.0 199.0 201.0 198.1 194.7* System Average Interruption Frequency Index is the average number of interruptions a customer experiences annually.** System Average Interruption Duration Index represents the total minutes of interruption the average customer experiences annually. 2011 AEP Corporate Accountability Report 17

2011 Operating Company* Projected ConstructionExpenditures ( in thousands )Appalachian Power $450,100Columbus Southern Power $186,900Indiana Michigan Power $304,900Ohio Power $264,100Public Service Company of Oklahoma $169,200Southwestern Electric Power $441,500* SEC registrantsbetter prioritize needs and make improvements in the system. Kentucky Power Co. has proposed a 138-kilovolt (kV) trans- Workers assemble some of the massive pipes that will be part of the 580-MWmission line between Knott and Perry counties that would enhance Dresden combined-cycle natural gas-fired power plant in Dresden, Ohio.reliability and security. If regulators approve, construction of the24-mile line could begin in 2012. An extreme cold weather snap tested the electricity system in from approximately 8 percent of our fuel portfolio today to 15 per-the Lower Rio Grande Valley in Texas in February 2011. A loss cent during the next decade.of supply and high demand led to rolling blackouts across the state In 2010, we completed construction of the 508-MW J. Lamarthat affected many AEP Texas customers. The event, which remains Stall unit in Shreveport, La., to serve Southwestern Electric Powerunder investigation by federal and state regulators, could poten- Co. (SWEPCO) customers. This combined-cycle gas plant is co-tially lead to even stricter reliability rules for the industry. It also located with SWEPCO’s Arsenal Hill Plant to take advantage ofstrengthens the argument for additional transmission in the area. existing natural gas pipelines and electric transmission lines. During the peak construction period, the Stall unit provided 700 jobs andSecure Fuel Sources now employs 10 permanent workers.Coal is an abundant, indigenous resource used to produce rough- We plan to complete the 580-MW Dresden combined-cyclely half of the nation’s electricity supply. It has been our most cost- gas plant in Ohio and bring it on line in the first quarter of 2012,effective fuel for more than a century, enabling us to provide a creating approximately 25 permanent jobs.source of reliable, affordable electricity to our customers. Coal will One of the factors driving our transition to natural gas is theplay an important role in our energy future, but natural gas looks growing supply of shale gas. The Marcellus, Utica, Haynesville,increasingly attractive given the promise of continued relatively low Fayetteville, Eagle Ford and Woodford shale formations are locatedprices due to the development of shale gas and the high cost of within or close to AEP’s service territory. The U.S. Energy Infor-environmental controls associated with coal. mation Administration (EIA) Annual Energy Outlook 2011 estimates In 2010, AEP consumed 67 million tons of coal, which ac- that the United States has 827 trillion cubic feet (Tcf) of natural gascounted for 80 percent of the energy we produced. As we retire shale resources. If the predictions are accurate, that is 480 Tcfsome of our coal units and adjust the operation of other units dur- more than was estimated in the EIA’s Annual Energy Outlook 2010ing the next decade, we expect that our generation from coal will and represents a long-term source of supply that should lead togradually decline. We will continue to be a major consumer of coal, stable prices.but we are aware of the increasing difficulty of negotiating long- As the shale gas market develops, we are talking to pipelineterm fuel contracts with the current heightened regulatory and mar- companies and gas producers about building infrastructure capa-ket uncertainty. ble of delivering the gas to our power plants. As these new markets Natural gas generation creates about half the carbon emis- evolve, we will learn more about choosing the optimal sites to buildsions of coal generation per kilowatt-hour of energy produced. new gas plants to serve our customers.Largely because of this advantage, natural gas is widely viewed asthe “bridge” fuel to a future when new technologies and renewable Nuclear & Hydro Powerenergy become widely available and cost-competitive. We have Nuclear and hydroelectric power represent a diverse and secureincreased our natural gas generating capacity during the past five energy future. Our Cook Nuclear Plant provides 5 percent of ouryears and will continue to do so as long as it remains a cost-effec- generating capacity and supplied more than 15,600 gigawatt-hourstive fuel option. We have added 4,181 megawatts (MW) of nominal of carbon-free electricity to customers of Indiana Michigan Powernatural gas capacity to our system since 2005. Co. (I&M) in 2010. The two units are licensed until 2034 and 2037. Our natural gas generating units consumed nearly 134 billion We have conducted feasibility and cost studies to increase outputcubic feet of natural gas in 2010, a 40 percent increase over 2009. by up to 400 MW during the next decade. We will determine theWe expect our natural gas-fueled generation will further increase cost effectiveness and demand for additional power before mak-18 Business Performance: Energy Security, Reliability & Growth

www.AEPsustainability.coming a decision to proceed. Given the challenges created by the transmission lines that will serve the plant. We have appealed thatJapanese nuclear crisis following the earthquake and tsunami, a decision, and a ruling is expected in the summer of 2011. Currently,rigorous evaluation is being done by the U.S. nuclear industry to more than 1,600 workers are employed in construction at the plant,ensure the ability to safely shut down reactors in the face of similar which is scheduled to be placed in service in late 2012. The plantcircumstances. We will learn from this. will also create 110 permanent jobs. We also own and operate 16 hydroelectric facilities and a The Turk Plant is needed to serve growing demand in thatpumped storage facility that contribute to cleaner energy resources region, providing long-term energy security for customers. If we areon our system. These facilities generate approximately 1,549 giga- unable to complete construction and place the plant in service orwatt-hours of power each year, serving customers in five states. if we cannot recover all of our investment in and expenses related to the plant, it would materially reduce future net income and cashTurk Plant Will Provide Energy Security flows and impact our financial condition, as well as reliability.Construction continues on SWEPCO’s 600-MW John W. Turk, Jr.,Plant in Hempstead County, Ark. During 2010, the Turk project Secure Delivery Systemsencountered many legal challenges, including a decision by the A robust and reliable transmission grid is another element of aArkansas Supreme Court reversing the certificate issued by the secure energy future. Regulatory delays and negotiations withArkansas Public Service Commission, an appeal of its air permit, stakeholders over siting, planning and cost allocation have causedand federal court actions challenging the permit issued by the U.S. significant delays in transmission project approvals across theArmy Corps of Engineers for stream crossings and wetland impacts. country. These delays are placing the nation’s grid in an evermoreSWEPCO is proceeding with construction under an exemption to precarious position from a reliability and security standpoint. As thethe Arkansas utility certificate law, and it received a decision from economy improves, demand for electricity will naturally increasethe Arkansas Circuit Court affirming the air permit. Opponents have and could create unbearable pressure on the existing infrastruc-appealed the decision to an Arkansas Court of Appeals. ture. We urgently need to modernize the grid. In addition, a federal district court has issued a preliminary We plan to enhance the reliability of our existing transmissioninjunction affecting the completion of the water intake and two system while investing in new infrastructure in our service territory and other parts of the country. Our transmission business will help us grow our earnings potential as it helps to modernize andA Public Service Company of Oklahoma employee switches meters as part of the secure the nation’s electric grid. In the process, we are supportinggridSMART® program in the Tulsa, Okla., area. the clean energy policies being considered in Congress, improving the operational efficiencies of the grid and reducing congestion costs. Learn more at www.AEP.com/about/transmission. Using Energy More Efficiently Our energy efficiency and demand response programs are important ways to further bolster energy security. Read more about energy efficiency in Climate Change. gridSMART ® A secure energy future requires that we use energy more efficiently and responsibly and improve the performance of the energy delivery system. We launched gridSMART ® in 2007 to give customers greater control over their energy usage, increase the efficiency of the electric grid, improve service to our customers and lead us to a new era of energy delivery. From a technology standpoint, gridSMART ® incorporates a two-way communications system between AEP and our customers that facilitates the more efficient use of electricity. For example, gridSMART ® may allow us to send price signals to customers so they can decide when to run home appliances. It can also allow us to adjust customer thermostats automatically, with their pre- approval, when demand is high and we need to lessen the stress on the electric grid. 2011 AEP Corporate Accountability Report 19

40% Consolidated Income Before Discontinued Operations & Extraordinary Loss ( in millions ) 2008 $ 1,376 2009 $ 1,370 2010 $ 1,218 approximate amount of AEP’s earnings that come from AEP Ohio AEP Ohio is pursuing a comprehensive gridSMART ® project line at full capacity this year.involving 110,000 smart meters and distributed grid management Over time, demand for electricity naturally increases. The EIAtechnologies on 70 circuits. The $150 million project was funded projects residential electricity use will increase 24 percent betweenwith a $75 million grant from the Department of Energy (DOE), in- 2008 and 2035. As electronics proliferate and more people movekind contributions from vendors and regulatory recovery from Ohio to warmer climates where cooling needs are higher, this trend isregulators. The project features smart meters, time-of-use tariffs, likely to continue.home energy use display devices, smart grid-enabled appliances, The hotter-than-normal summer of 2010 demonstrated howplug-in electric vehicles, distribution automation equipment, com- weather affects electricity use. PJM Interconnection, the grid oper-munity energy storage devices and a cyber security center. ator for our eastern states, recorded a 12 percent increase in elec- Our most extensive smart meter deployment project is in tricity consumption compared with the summer of 2009, led partlyTexas, where we are installing nearly 1 million smart meters. In ad- by greater use of air conditioning.dition, I&M and Public Service Company of Oklahoma (PSO) aredeploying smart grid technology pilots in their states. Measuring Growth Our initial goal was to install 5 million smart meters by 2015 Customer counts are one measure of our company’s financialthroughout the AEP system. Through our early deployments, we strength. At the end of 2010, we had about 5.3 million customershope to determine if the expense of the meters is offset by the on our system. Residential and commercial customers increasedbenefits. We will continue to pursue the deployment of these smart slightly, but the gains were offset by modest decreases in thegrid technologies where regulators are supportive and there is a industrial sector. This was true across all of our service territory.proven business case. We believe modernizing the grid is critical to Sales growth varied by sector: Residential (weather-normalized)reducing demand and energy consumption, contributing to energy sales were relatively flat in 2010, increasing 0.6 percent. We arereliability and security, and preparing for the future needs of cus- forecasting a 1.9 percent increase this year. Commercial sales alsotomers. Get a state-by-state breakdown of gridSMART ® initiatives remained relatively flat, down by 0.4 percent. We’re forecasting aonline at www.AEPsustainability.com. modest recovery of 0.7 percent in 2011. We experienced significant sales growth of 5 percent in theEnergy Demand & Financial Growth industrial sector, the hardest hit in 2009. The five sectors that com-The recovery and growth of the U.S. economy depends on reliable prise 60 percent of our industrial sales increased their consumptionand cost-effective electricity. This is particularly important as local in 2010. Led by primary metals, these sectors include chemicaleconomies and companies struggle to regain their pre-recessionfooting. AEP strives to serve as a partner in these efforts. For exam- AEP Operating Company* Profiles (dollars in thousands) Total kWhple, AEP Ohio worked with regulators, state officials and Ormet Customers Revenues Net Income Sales**Corp., our largest customer, to structure an economic development Appalachian Power 957,000 $ 3,275,103 $136,668 38,556contract that helped the company to continue operating through Columbus Southern Power 749,000 $ 2,149,041 $ 230,223 24,185 Indiana Michigan Power 582,000 $ 2,195,727 $126,091 26,560the economic downturn. The competitive rates offered by AEP Ohio Ohio Power 706,000 $ 3,223,707 $ 311,393 31,716enabled Ormet to return to full production this year. That is good Public Service Co. of Okla. 532,000 $ 1,273,662 $72,787 19,107news for the people and economy of eastern Ohio, where Ormet’s Southwestern Electric Power 520,000 $1,523,534 $146,684 25,146increased business is putting people back to work. It is good for * SEC registrantsAEP because it means our largest customer is expected back on ** Millions of kilowatt-hours20 Business Performance: Energy Security, Reliability & Growth

www.AEPsustainability.com has already approved 284 miles of the 451-mile AEP Texas senior project. Reviews are expected to be completed this engineer Sam Hunt, year. Once these are under way, an additional left, observes while $1.6 billion in projects are in the pipeline, represent- employees from Comisión Federal ing 822 miles of lines and 28 substations with in- de Electricidad and service dates through 2017. These projects support an AEP contractor the state’s commitment to renewable energy. conduct final testing of The second leg is our AEP Transmission Co. a 4-MW NaS battery (Transco). In 2009, AEP Transco formed seven at Presidio, Texas. The wholly owned transmission companies. AEP installation enhances grid reliability along the Transco is operating in Ohio, Michigan and Okla- Texas-Mexico border. homa. Applications to initiate operations have been filed with the respective state public utility commissions in Kentucky, Indiana and West Virginia.manufacturing, petroleum and coal products manufacturing, min- The transcos have their own capital structure, which relievesing (except oil and gas) and paper manufacturing. The primary met- some of the financial burden from our operating companies. Theals sector grew by 6.5 percent, but the recovery was widespread. transco rates are regulated by the Federal Energy Regulatory Com- Overall, sales for all classes of customers grew by 1.1 percent mission. We invested approximately $50 million in these statesin 2010, and we are forecasting 1.7 percent growth in 2011. Sales in 2010 and expect to increase that to $160 million in 2011 andin the western part of our service territory are growing faster than in approximately $350 million in 2012.our eastern service territory, and we expect that to continue. The third leg of our strategy is our joint ventures with other companies to build transmission capacity. These projects lever-Transmission as a Growth Engine age our transmission expertise and feature partnerships with otherAn interconnected and robust transmission grid that can easily companies to finance them.move power between different regions of the country is central to Our transmission strategy is a key component of our futureour vision of a modern electric system. We believe this “transmis- earnings growth. We are reprioritizing some of our transmissionsion backbone” is the key to a secure energy future, economic projects to accommodate those that are likely to move forwardprosperity and AEP’s continued financial growth. Effective and effi- more quickly. Cost allocation and siting continue to be the biggestcient transmission is critical to ensuring our ability to access the challenges. We are committed to working with state and federalnew base load generation that will replace older coal plants that will regulators and with local communities to get these needed projectsbe retired during the next decade. built in a timely fashion. We believe they will help to create and sup- Our three-pronged transmission strategy will create signifi- ply energy that will spur economic growth and prosperity.cant growth opportunities within and outside of AEP’s traditional In February 2011, the Southwest Power Pool gave its approvalservice territory. to Prairie Wind for an extra-high voltage 345-kV double-circuit The first part is Electric Transmission Texas (ETT), a joint ven- transmission line running from a new 345-kV substation near Wich-ture between subsidiaries of AEP and MidAmerican Energy Hold- ita, Kan., to a new 345-kV substation northeast of Medicine Lodge,ings Co. that operates within the Electric Reliability Council of Kan., and then south to the Kansas/Oklahoma border. A sitingTexas. ETT has been assigned about $1.1 billion in Competitive application is pending before the Kansas Corporation Commission.Renewable Energy Zone projects in Texas. These involve seven Prairie Wind Transmission is a joint venture between Electric Trans-double-circuit 345-kV transmission lines, eight transmission sta- mission America and Westar Energy. Learn more about our overalltions and other equipment. The Public Utilities Commission of Texas transmission strategy at www.AEP.com/about/transmission/.Transmission Joint Venture Initiatives (estimated cost in thousands)Project Location Completion Date Owners ( Ownership % ) Estimated CostETT Texas 2017 MEHC Texas Transco, LLC ( 50% ) / AEP ( 50% ) $3,100,000PATH West Virginia / Virginia / Maryland To be determined Allegheny ( 50% ) / AEP ( 50% ) * $2,100,000Prairie Wind Kansas 2014 Westar Energy ( 50% ) / ETA ( 50% ) ** $225,000Pioneer Indiana 2016 Duke Energy ( 50% ) / AEP ( 50% ) $1,000,000* Allegheny Energy merged with FirstEnergy effective Feb. 25, 2011.** Electric Transmission America, LLC (ETA) is a 50/50 joint venture with MidAmerican Energy Holdings Co. (MEHC) America Transco, LLC and AEP Transmission Holding Co., LLC. ETA will be utilized as a vehicle to invest in selected transmission projects located in North America, outside of ERCOT. AEP Transmission Holding Co., LLC owns 25 percent of Prairie Wind through its ownership interest in ETA. 2011 AEP Corporate Accountability Report 21

F or more than 100 years, our customers have relied on us to deliver dependable, affordable electricity, and our shareholders have relied on us to deliver a return on their investment. We also must comply with all applicable environmental lawsand regulations, manage our impacts beyond compliance whenappropriate, and work with our suppliers and stakeholders on awide variety of other issues. We welcome and embrace these chal-lenges because, in working to meet them, we become a strongerand more resilient company. In recent years, our environmental efforts have become muchmore closely linked to our business performance and our relation- AEP’s coal plants, including the Rockport Plant, Rockport, Ind., accounted forships with a wide range of stakeholders. We have spent billions of 80 percent of the energy we generated in 2010 and will continue to be andollars to comply with environmental regulations and face significant important part of our fuel mix for years to come.business risks related to our impacts on the environment if we fail. Our company and our industry are on the cusp of a majortransformation. It is being driven, in part, by new market funda- approaches. We believe the implementation process must bementals that will prompt a shift in resources, an aging infrastructure thoughtful and take into account the impacts to the economy, reli-that is not cost-effective to operate and changes in how customers ability of the electric grid and costs to customers, as well as theuse electricity. Another major factor driving this transformation is environmental and public health benefits. We support the Clean Airproposed changes to environmental regulations. Act and we are not seeking to halt implementation of the rules. But The U.S. Environmental Protection Agency (EPA) has an- that is the perception of some of our stakeholders. We simply neednounced new or revised regulations governing coal ash disposal, air more time to comply, and it is up to us to do a better job communi-emissions, cooling systems and power plant wastewater effluent. cating our true intent. We are developing a transition plan that addresses all factors We believe additional time to comply is justified because sig-driving our transformation, and all options are under consideration. nificant bodies of scientific work, including previous calculations byIt will take time, but we are confident AEP will emerge from this the EPA, indicate that power plant particulate emissions are not atransformation successfully. As we put our plan together, we are significant risk to public health. We contend that particulates gener-very concerned about the EPA’s proposed timing and lack of coor- ated by the transportation sector are a greater risk to public health.dination for implementation and the consequences of disjointed We recognize that environmental regulation is connected di-Environmental Performance: Environment.5 billion Environmental Performance Index ( number of incidents per year ) Target 12 2008 10 Target 10 2009 9 Target 10 2010 Actual 15cubic meters of water loss due to evaporation 2011 Target 10from cooling towers per year This internal index sets targets for environmental performance that are tied to compensation. It sets goals for opacity, NPDES, and oil and chemical spills at our power plants.22 Environmental Performance: Environment

www.AEPsustainability.comrectly to our social and economic issues. Well-designed regula- Environmental Compliance & Performance Managementtions with realistic compliance requirements and reasonable time- We believe our environmental compliance is excellent overall. Butlines for implementation can protect the delicate economic recov- we always will maintain the attitude that there is room for improve-ery of communities, preserve and create jobs, ensure grid reliability ment. Our challenge is to maintain compliance and improve per-and keep electric rates reasonable for consumers and businesses, formance while our industry is in transformation. We face uncer-while achieving significant environmental benefits. These are the tain fuel markets, aging infrastructure, and pressure to keep costsissues we are trying to address with the EPA. down for customers during tough times, as well as a regulatory We have already made significant progress toward reducing environment that is more stringent and complex.emissions by installing state-of-the-art pollution controls during the Compliance is the foundation of our environmental efforts andpast decade. We have built nine scrubbers on 7,900 megawatts our goal is to have no significant enforcement actions.1 State and(MW) of our coal-fired generating capacity between 2003 and 2011 federal regulators conducted more than 190 inspections acrossand selective catalytic reduction systems (SCRs) on more than our system in 2010, scrutinizing everything from physical structures11,000 MW since 2001. As a result, sulfur dioxide (SO2) and nitro- and procedures to record-keeping practices. We received noticegen oxide (NOx) emissions have been reduced by about 80 percent of three significant enforcement actions from regulatory agenciesfrom 1980 levels. In preparation for the addition of more controls related to operations at our Amos Plant in West Virginia in 2010on our plants, we have begun preliminary engineering and design and thus failed to meet our goal of zero enforcement actions. Forwork to build new scrubbers and other controls. In our experience it details, go to www.AEPsustainability.com.takes four to five years to engineer, fabricate and install a scrubber.Even this early preparation won’t get us to the EPA’s compliance Our Position on Pending Regulatory Changesdeadlines on time, but we are confident that we can do it by 2020. Both the industry and the EPA need to consider the full range of Our coal ash management practices also have evolved. We regulatory proposals in context to ensure the most efficient andbeneficially reuse or recycle approximately 40 percent of the coal effective approach to the timing and implementation of multiple andcombustion residuals (CCRs) we generate. We enhanced our overlapping requirements. We support the Clean Air Act and under-groundwater monitoring program by installing 84 additional moni- stand the EPA’s role as rule maker and enforcer. As we develop ourtoring wells since 2008 and expanded the inspection program at transition plan for the future, our commitment is to compliance.our coal ash disposal facilities to include audits of our inspectionprocess in 2010 – an added layer of checks and balances. We sup- 1 We define a significant enforcement action as one that arises from events thatport a comprehensive review of all the regulations in concert to are within our control, has more than a minor environmental impact and resultsensure coordination and feasibility of the regulations and timing. in a fine greater than $1,000.The industry and the EPA need to consider the full range of regulatory proposals incontext to ensure regulations are well-designed with realistic compliance requirements.If done right, we can protect local economies and jobs and keep rates reasonablefor customers.80% reduction Historical & Projected Environmental Investments ( in thousands ) 2008 $ 886,800 2009 $ 457,200 2010 $ 303,800 in SO2 & NOx emissions from AEP plants since 1980 2011 Estimated $ 223,1003.2 2012 $ 340,300 million Estimated 2013 Estimated $ 678,500 tons of coal ash reused or recycled 2011 AEP Corporate Accountability Report 23

2009 U.S. Coal Combustion Residuals Utilization Summary a balanced consideration of public health, customer impacts and( in tons ) financial constraints. We feel that, on occasion, the EPA views com-Concrete/Concrete Products/Grout 10,610,410 panies’ access to capital as infinite. It is not.Blended Cement/Raw Feed for Clinker 3,577,726 We will continue to work closely with the EPA and our stake-Flowable Fill 414,410Structural Fills/Embankments 8,856,396 holders to achieve the favored outcomes. But if the implementa-Road Base/Sub-base 968,291 tion schedules are too aggressive, the technology to comply is notSoil Modification/Stabilization 957,116 available or the costs are too high, or if compliance with one regula-Mineral Filler in Asphalt 0 tion creates noncompliance with another, then we will not be ableSnow & Ice Control 302,827 to support those proposals.Blasting Grit/Roofing Granules 1,743,621 Following is a summary of where we stand on each of the rulesMining Applications 14,897,415Gypsum Panel Products 7,288,755 and regulations the EPA is proposing. More detailed informationWaste Stabilization/Solidification 3,738,799 about each rule is online at www.AEPsustainability.com/ourissues.Agriculture 388,990Aggregate 574,083 Clean Air Transport RuleMiscellaneous/Other 1,323,172 In July 2010, the EPA proposed the Clean Air Transport Rule (CATR)Beneficial Use as Percent of Production 41.3% to replace the Clean Air Interstate Rule (CAIR). CATR would imposeCCR Production Utilization Totals 55,642,011 new and more stringent requirements to control SO2 and NOxSource: American Coal Ash Association, Coal Combustion emissions from fossil-fueled electric generating units in 31 statesProduct Production & Use Survey and the District of Columbia, starting in 2012. Each state covered by the Transport Rule is assigned an allowance budget for SO2 and2010 AEP Coal Combustion Residuals Utilization Summary NOx and limited trading may be allowed. Facilities in Texas, Arkan-CCR Donated (tons) 186,015 sas and Oklahoma would be subject only to the seasonal NOx pro-CCR Used Internally (tons) 1,448,885 gram, with new limits that are proposed to take effect in 2012. TheCCR Sold (tons) 1,565,247 remainder of our states would be subject to seasonal and annualTotal CCR Produced (tons) 8,706,332 NOx programs, also starting in 2012, and an annual SO2 emis-Total CCR Avoided Cost $18,309,834Total CCR Revenues $10,793,087 sions reduction program that takes effect in two phases. The firstTotal Worth $29,102,921 phase, in 2012, requires approximately 1 million tons in additional% Total Utilization Based on Total Production 36.76% SO2 emission reductions across the region than would have beenCCR Utilized (tons) 3,200,146 required under CAIR. The second phase takes effect in 2014 and reduces emissions by an additional 800,000 tons per year. When we analyze the rules together, we see one outcome; With the final rule due later this year, there will be little timewhen the EPA analyzes the rules one-by-one, they see something to make the infrastructure additions to comply with the reductionentirely different. We are trying to persuade the EPA that, in our required by 2012.experience, we cannot achieve compliance on the prescribed time- We believe the emissions reductions that have already oc-tables and we must consider the rules in concert. We know we can curred or that will occur by complying with CAIR and other regula-comply if we have more time. tory programs will achieve the air quality goals the EPA has identi- We are asking that the timeline for the proposed changes reflect fied. The Transport Rule should be delayed at least until the end of7,900megawattsgenerating capacity AEP completed this scrubber at the Amos Plant in St. Albans, W.Va.,retrofitted with scrubbers in 2010, one of ninebetween 2003 & 2011 scrubbers built since 2003.24 Environmental Performance: Environment

www.AEPsustainability.com2015, when other regulatory programs will be in full effect. Then, ating, but not to expand, and would require additional groundwaterif necessary, the rule should be reconsidered in the context of any monitoring and other controls.remaining air quality improvements that can be achieved with fur- We estimate the potential cost to comply with the least restric-ther reductions from the electric power sector. tive proposed solid waste alternative could be as high as $3.9 billion for units across the AEP system. If the EPA decides to regulateHazardous Air Pollutants from Electric Generation Units coal ash as a hazardous waste, those costs would significantlyOn March 16, 2011, the EPA proposed a rule that would regulate increase. The EPA received more than 420,000 public commentsemissions of mercury and other hazardous air pollutants (HAPs) on this proposed rule.from electric utility boilers (coal and oil). A final rule is due in Novem-ber 2011. In general, affected facilities must comply within three Section 316(b) of the Clean Water Act —years after a final rule is published, with the possibility of a one-year Cooling Water Intake Structuresextension. The proposed rule addresses emissions of mercury, acid To protect aquatic species, the EPA is evaluating revisions togases, nonmercury metals and organics and also includes work regulations under Section 316(b) of the Clean Water Act that gov-practice standards and monitoring and reporting requirements. ern the design and placement of cooling water intake structures We are still in the process of reviewing the documents and and systems at power plants. One option the EPA has proposedassessing the impact on AEP. Our initial assessment suggests that is to require the construction of cooling towers on power plantswe will have to install additional controls on a number of our coal that withdraw cooling water from rivers, lakes and estuaries. Theplants and the compliance deadline of three years, with a possible premise is that plants with cooling towers require less water to beone-year extension, simply is not feasible. Our evaluation will be withdrawn and have less impact on aquatic life. The U.S. Supremepart of the transition plan we are preparing, which won’t be final Court has confirmed that the EPA may take costs and benefits intountil we have a clearer picture of all of the rules and their collective consideration in developing these standards.implications for our operations. We agree that appropriate and cost-effective measures can be taken to reduce impacts to aquatic life from cooling water intakeCoal Combustion Residuals structures but believe that, for many plants, the impacts are small.In June 2010, the EPA proposed a rule to regulate the disposal and As a case in point, we have more than 30 years of data on the Ohiobeneficial reuse of CCRs, including fly ash and bottom ash gener- River that show relatively minor impacts and that the existing cool-ated at coal-fired electric generating units. The rule contains three ing systems are compatible with the health of the ecosystem.alternatives. One would impose federal hazardous waste disposal We strongly believe the EPA needs to weigh carefully the costsand management standards on these materials. One would regulate and benefits of any proposal. The agency has proposed a rule thatCCRs as solid wastes under state programs, implementing new fed- lays out a process for a site-specific review of technology choices.eral requirements. Both proposals would impose stringent require-ments for the construction of new coal ash facilities and would Greenhouse Gas Regulationrequire existing, unlined landfills and surface impoundments to AEP’s position on climate change has not wavered: We believeupgrade to new standards or stop receiving coal ash, which would that scientific evidence points to human activity as a contributor toinitiate closure of the impoundments under a schedule that would global warming. However, given the magnitude of the transition tobe directed by the new rule, once final. A third option would allow a reduced carbon electric sector, AEP believes this issue should be 9existing facilities that pose no risk to groundwater to continue oper- addressed legislatively. Despite this, the EPA has forged ahead withSO2 & NOx Emission Trends at AEP-Owned Plants ( measured in U.S. tons ) 1,828,000 1,548,000 1,535,000 1,018,000 1,020,000 900, 000 416,000 618,000 600,000 613,000 520,000 448,000 275,000 125,000 number of scrubbers 1980 1985 1990 1995 2000 2005 2010 built on coal units l SO 2 l NOx between 2003 & 2011 2011 AEP Corporate Accountability Report 25

two greenhouse gas (GHG) regulations that affect AEP’s facilities. The first requires us to formally report GHG emissions for eachpower plant for the first time. This is not a significant issue for usbecause we have been tracking CO2 emissions from our powerplants since 1993 through the EPA’s Acid Rain program and havebeen reporting emissions to EPA’s Climate Leaders program andthe Chicago Climate Exchange since 2003. There are other smallersources of GHGs at our facilities that have not been routinelyinventoried (less than 1 percent of our emissions), and we haveestablished an electronic reporting system to collect this new infor-mation. EPA’s electronic reporting system is not yet available andreporting has been delayed. Read about the Tailoring Rule online at Water intake screens like these at the Cardinal Plant in Brilliant, Ohio, are thewww.AEPsustainability.com. target of the U.S. EPA’s proposed rule regarding cooling water intake structures at power plants.Stakeholder ReactionsWe continue to have candid discussions with stakeholders, reg- to customers and the economy. Until the rules are final, it is ex-ulators, customers, legislators and other policymakers about the tremely difficult to estimate the total cost of compliance or the exacttransition we are in and the impacts it will have on reliability, cus- amount of coal-fired generation that will be retired. However, wetomer bills, jobs and the economy, as well as the environmental know it will be significant. During the past decade, we investedbenefits. The perspective of our stakeholders is diverse. Some more than $5 billion in pollution controls at many of our coal units,have challenged why we didn’t start preparing state regulators and we believe the cost to comply with the EPA’s proposed rules,and regional transmission operators sooner, knowing these sys- if approved as is, could be more than double our costs to datetem changes were coming. However, until we knew with certainty during the next decade. This is consistent with the Edison Electricwhat the proposals would be, we could not determine the impact Institute’s analysis that concluded the rules would force the shut-on our system. We are having those conversations now. We also down of 20 percent to 30 percent of coal-fired capacity nationwideare trying to figure out how to pay the cost of this transformation. and require about $200 billion in additional capital expense for the We encourage our stakeholders to come to us with their con- utility industry. This is about three times what the industry spent oncerns, as they have been doing; this helps us to be better informed environmental controls during the previous 20 years.about these issues and to clarify any misperceptions about the What concerns us most is the impact this would have on ourpositions we are taking and the reasons for them. It also helps us customers and local economies. We could see rates increase sig-to understand their perspective and consider alternatives. We may nificantly at a time when the economy is still fragile, particularly indisagree on some issues, but it is important that we continue to the areas we serve where income is below the national mediancommunicate. We hope our approach is mutually beneficial to our and customers already struggle to pay their electric bills. Such ratestakeholders and that they better understand our challenges. increases would have very detrimental impacts on jobs and the economy in general. Read more about this issue in Public Policy.The Cost of Compliance Between 2003 and 2011, we built nine scrubbers. Since 1980,The time frame for compliance is one concern; the other is the cost our investments in environmental controls have reduced SO 2 and 13.8 billion TRI System Releases in 2009 to Water ( 147,284 pounds ) n Barium 41 % n Ammonia 3 % n Copper 24 % n Chlorine 2 %cubic meters of total annual plant water discharges n Arsenic 9 % n Chromium 1 %44 n Manganese 6 % n Other 1 % n Zinc 5% number of ash ponds n Nickel 4% on the AEP system n Selenium 4 %26 Environmental Performance: Environment

www.AEPsustainability.comNOx emissions by about 80 percent. During that time the rate im- Reducing Wastepacts to customers were somewhat offset by fuel cost reductions, The production of electricity creates solid and hazardous wastereductions in the normal capital budget and very little construc- that we work to manage responsibly. Our largest waste stream istion of new power plants. That will not be the case going forward. from coal ash; we operate 14 landfills, 44 ash ponds and 10 other We don’t dispute that there would be short-term job creation impoundments at 22 power plants. About 40 percent of our coalduring the construction phase. But those jobs would disappear ash is recycled or reused each year. These beneficial uses reducewhen the construction is complete. Our analysis indicates that for the need for more landfill space and also provide revenue. In 2010,every job gained at a combined-cycle natural gas plant, which is we received $10.8 million from the sale of coal combustion resid-what we would eventually build, four or five jobs would be lost by uals and avoided another $18.3 million in disposal costs.a coal plant shutdown. That’s because gas plants require fewer We continue to reduce the amount of PCB-containing equip-people to operate. At the same time, manufacturers that rely heav- ment in the AEP system. PCBs have not been used in new equip-ily on electricity for their production processes could be forced to ment for more than 30 years but are still present in some of ourclose or go abroad, eliminating jobs and tax revenues. We know older equipment. In 2010, we removed and recycled approximatelythis because we are hearing it from customers now. 32,800 pieces of electrical equipment. Of that, 1,790 (approximately 5.5 percent), and less than 0.5 percent of the transformers,Other Environmental Issues were found to contain greater than 500 parts per million (ppm) of PCBs. Only about 3 percent of 1,576 transmission and distributionProtecting the Water electrical equipment spills involved oil that contained 50 ppm orThe production of electricity can affect the quality of surface greater PCBs, and all were cleaned up properly.water and groundwater through precipitation runoff, infiltrationand collection of wastewater for treatment. States protect surface Biodiversitywaters through a National Pollutant Discharge Elimination System “Ecosystem services” is a term that refers to the concept that peo-(NPDES) permit process. State regulation of surface impound- ple receive “services” from healthy, functioning ecosystems. Forments and landfills promotes protection of surface and groundwa- example, products such as clean drinking water and processester resources. The federal Clean Water Act and the Safe Drinking such as flood control through wetlands and the decomposition ofWater Act also protect groundwater and surface water by setting wastes are beneficial “services” that are provided by the environ-standards on discharges. ment that benefit people. The pollination of trees and crops, seques- We have invested heavily in water treatment systems to en- tration of GHGs and recreational opportunities are other examples.sure we comply with our NPDES permits, and we have an extensive The electric power industry may also benefit from these ecosys-groundwater monitoring program to help us detect adverse im- tem services, but we do not fully understand what services we relypacts to water quality. Our design and construction practices for on, what services our operations may impact or the economic conse-new landfills typically include composite liners, leachate collection quences if those services were no longer provided by nature.systems and groundwater monitoring wells. We are proactively Read more about emission reductions, water availability andadding an additional synthetic liner to the landfill that will eventually usage, avian protection and coal supplier performance online atserve the John W. Turk, Jr., ultra-supercritical coal plant in south- www.AEPsustainability.com/ourissues/envperformance/.west Arkansas. This will bring the design up to the level included inthe EPA’s proposed coal combustion residuals rule. The Cardinal Plant, in Brilliant, Ohio, is one of AEP’s plants most likely to be affected by the U.S. EPA’s proposals to modify cooling water intake systems to reduce the impact on aquatic life. The Cook Plant, in Bridgman, Mich., is also among those that could be most affected. 2011 AEP Corporate Accountability Report 27

F or many years, climate change has been one of the most sig- to address the issue of climate change in the United States. Such nificant sustainability issues facing AEP. One major reason is an approach would provide the certainty needed to plan long-term our reliance on coal. Because of the company’s proximity to capital-intensive investments. That is why we have supported a host the nation’s coal fields, its legacy in coal-fired generation, the of bills in Congress to advance this issue on the legislative front.expertise we developed over more than a century and the huge We don’t agree with all provisions of all bills. Many stakeholders,investments we have made, coal will remain a part of AEP’s fuel including environmental groups and policymakers in our states,portfolio for many years to come. We are one of the largest con- have taken issue with our approach. But we believe the path towardsumers of coal in the Western Hemisphere and coal still accounts a workable solution includes incentives for technology develop-for about 80 percent of the energy that we generate. ment and deployment, credit for early actions and an approach As our nation and the world began to focus on global warming, that is economywide. This can best be achieved through legislationwe took steps to reduce greenhouse gas emissions, from planting and not regulation under the constraints of the Clean Air Act.millions of trees to building the world’s first carbon capture and Without that certainty, it is impossible to justify expendituresstorage validation facility at our Mountaineer Plant in West Virginia. in the billions of dollars that might otherwise put the company andWe did this voluntarily. its shareholders at risk. Unfortunately, such legislation appears Our position on global warming has not changed: We do not unlikely in this Congress.dispute the science that indicates that human activity contributesto climate change. However, we support a legislative approach When Technology & Policy Collide, Technology Often Losesto deal with this issue rather than through regulation. And while Our carbon capture and storage (CCS) validation facility, which re-voluntary activities have diminished in the United States, climate moves CO2 from a 20-megawatt (MW) stream of the Mountaineerchange remains an important issue for AEP that we will continue to Plant’s flue gas and stores it underground, demonstrates that CCSaddress. Our challenge is that without a legislative requirement to technology works on a small scale. It has captured more thanreduce greenhouse gases (GHGs), the state regulators who set our 27,000 metric tons of CO2 and stored more than 17,000 tons under-rates have been sending us clear signals that they will not approve ground. This project has become the basis for a larger study atrate increases to recover our climate-related project expenses. With- the same facility, funded in part by the U.S. Department of Energyout a market for carbon allowances, we cannot obtain early-action (DOE) under the Clean Coal Power Initiative Round 3 program.credit toward future emission mandates. We remain open to consid- These are critical steps toward commercializing this technology.ering all options, but – especially in light of the continuing economic The legal and political landscape has changed significantlychallenges we face – we are not likely to commit to new projects. since the validation facility began operating in October 2009, and We remain convinced that federal legislation is the best way the changes affect our ability to commercialize CCS. The state ofEnvironmental Performance: Climate Change95 2010 AEP Energy Generated by Fuel 2010 AEP Generating Capacity by Fuel n Coal/Lignite 80 % n Coal/Lignite 65 % n Nuclear 9% n Natural Gas 23 % n Natural Gas 8 % million metric n Hydro, Wind, 7 %tons of C02 n Hydro, Wind, 3 % Solar & Solar & Pumped Storage reduced or Pumped Storageoffset through n Nuclear 5% Includes purchasedCCX between wind generation; does not include wholesale2003 & 2010 wind generation. 28 Environmental Performance: Climate Change

www.AEPsustainability.com Virginia disallowed recovery of a portion of AEP Chairman & CEO the Mountaineer carbon capture validation Mike Morris, left, and Zhenya Liu, CEO of facility expenses, signaling a greater reluc- State Grid Corporation tance by regulators to pay for developing of China, right, sign technology. We took a pretax write-off of a technology transfer approximately $54 million as a result. We are agreement in January evaluating West Virginia’s regulatory decision 2011 as U.S. Energy on the project. Secretary Steven Chu, center, looks on. Without regulatory support or incentives, neither AEP nor our customers can afford the enormous expense associated with developing CCS technologies. Until regulatory policy changes or financial incentives become available, CCS technology likely will elude commercialization. count fully or only partially, and the interim targets we would have to achieve. In the wake of the Japanese nuclear crisis, the role that Federal Clean Energy Standard nuclear power may play in meeting such a standard is uncertain. Its A more likely alternative is a federal clean energy standard. The exclusion would be unfortunate. existing environmental regulatory scheme directed toward clean We are concerned about the inequities that could occur in energy is a hodgepodge and is conducted in siloed processes that pursuit of the president’s clean energy plan. For example, some do not adequately consider the impact of previous or upcoming states in the Pacific Northwest are already producing more than regulations, the economic costs and benefits to communities, or 90 percent of their electricity from clean sources, thanks to signifi- the time required for compliance. A comprehensive federal leg- cant hydro resources in that region. The plan could lead to huge islative approach could achieve significant energy savings, foster surpluses of clean energy credits for states and utilities with large domestic energy supplies and provide more rational environmental hydro or nuclear capacity today, and huge deficits for states such regulation. Even so, this legislation will be difficult to achieve. as Ohio, Kentucky, West Virginia and Indiana, which rely heavily on During his 2011 State of the Union speech, President Obama coal. Some method to deal with these inequities would be required. proposed a federal standard that sets an 80 percent clean energy goal by 2035. Our ability to achieve this goal will hinge on details Slowdown in Other Voluntary Efforts such as whether natural gas, nuclear, hydro, and coal with CCS As noted, it is extremely difficult for regulated utilities to take on The appetite for voluntary action has diminished. Without a clear legislative mandate to reduce greenhouse gases, state utility regulators are sending clear signals that they will not approve rate increases for climate-related projects. U.S. Electricity Generation by Fuel 1990 – 2035 2020 Projected AEP Generating Capacity by Fuel 5 1%Trillion kilowatt-hours per year 1% 17 % n Coal/Lignite 52 % 4 20 % 14 % n Natural Gas 29 % 3 10 % 25 % 23 % n Hydro, Wind, 13 % 2 Solar & Pumped 1 45 % 43 % Storage 2009 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 n Nuclear 6 % Actual Actual Actual Actual Projected Projected Projected Projected Projected Projected n Coal n Natural Gas n Renewables n Nuclear n Other Source: Energy Information Administration, Annual Energy Outlook 2011 Early Release Overview 2011 AEP Corporate Accountability Report 29

voluntary programs to reduce greenhouse gas emissions in theabsence of federal climate legislation. Our voluntary tree plantingand agricultural methane capture efforts are difficult to justify whenwe aren’t getting any return on them for our shareholders or assur-ances of credit toward future compliance obligations. Structured voluntary efforts, such as the EPA’s Climate Lead-ers program and the Chicago Climate Exchange’s emissions trad-ing program, also were affected by the lack of momentum onCapitol Hill. In the case of Climate Leaders, which AEP joined in2003, the EPA ended the program as it implemented GHG regula-tions. The Chicago Climate Exchange (CCX), which AEP joined as The Wyandot Solar Project, which began commercial operation in 2010 near Uppera founding member in 2003, announced in November that it would Sandusky, Ohio, provides 10 MW of renewable energy to AEP Ohio customers.suspend its emissions credit trading program. AEP expects to reduce GHG emissions by an additional 10percent by 2020 from 2010 levels. In 2010, AEP emitted 134 million increase reliability and enhance America’s energy independence.metric tons of GHGs from its plants. This will result in a total reduc- Furthermore, since natural gas also emits less carbon dioxidetion of approximately 25 percent from 2003 levels, the first year of per unit of electricity produced than oil and coal, moving to naturalour CCX commitment. gas will give the nation more time to develop other sources of clean We will, however, achieve additional GHG reductions as we energy while combating climate change. Natural gas generationretire older, less efficient coal units and replace them with new nat- facilities generally can be sited and built much more quickly, lessural gas and/or renewable generation, where supported. Under the expensively and with much less risk than coal or nuclear plants.EPA’s proposed Transport, Coal Combustion Residuals and Haz- AEP has been steadily increasing its gas generation capac-ardous Air Pollutant rules, AEP may be forced to retire a significant ity. Since 2005, we have added 4,181 MW of nominal natural gasamount of older coal-fired generation in the next several years. The capacity to our system, and we expect natural gas to account forindustry as a whole may retire between 50 gigawatts and 100 giga- about 29 percent of our generating capacity by 2020 versus 23 per-watts. Some of that generation most likely will be replaced with cent today. Read more about this issue in Energy Security, Reli-natural gas plants, which emit about half the carbon dioxide of coal ability & Growth.combustion plants. See Environmental Performance for more infor-mation about these rules and our positions on them. The Role of Renewable Energy Even as natural gas becomes a larger part of the nation’s and AEP’sThe Transition to Natural Gas fuel supply, we also continue to develop renewables such as windRecent developments in the technology to economically recover and solar where they are supported. We must develop all cost-natural gas from shale rock formations have taken some of the effective sources of energy in order to be sustainable.urgency away from clean coal and nuclear power. This represents In 2009, we doubled our goal of adding 1,000 MW of renew-an exciting opportunity for AEP and much of the energy industry. able energy (from 2007 levels) to serve our customers by the endIf domestic shale gas can be safely, environmentally and economi- of 2011. We made steady progress, completing 209.5 MW of previ-cally tapped, stored and delivered, it will stabilize energy costs, ously announced wind and solar projects and 99 MW of new wind134 million AEP’s Renewable Energy Footprint n AEP states with renewable /alternative energy standards n AEP states with voluntary renewable energy standards / goals n Other AEP statesmetric tons of GHGs emitted in 2010 l Wind resources ( AEP Energy Partners )$70 l Wind resources million l Hydroelectric projects invested in Solar energy efficiency in 201030 Environmental Performance: Climate Change

www.AEPsustainability.comTotal Coal Delivered to AEP Plants system by the end of 2012 through demand response and energy 2008 2009 2010 efficiency programs. Between 2008 and 2010, we achieved approx-Thousands of tons 77,054 75,909 64,614 imately 400 MW and 1,116,000 MWh of demand and energy con-Average price per ton $ 47.14 $ 49.54 $ 44.82 sumption reductions, respectively. Subject to regulatory approvals and continued customer interest in our programs, we expect toprojects. In addition, we announced plans for an additional 99 MW surpass our energy reduction goal.from the Timber Road Wind Farm, which is slated for completion in These efforts are reflected in the growth of our investments inmid-2011. This project is subject to regulatory approval in Ohio. energy efficiency during the past several years. In 2008, we invested The new projects put us at 1,111 MW toward our 2,000-MW nearly $13 million in energy efficiency and demand response pro-goal. That does not include a 49.9-MW solar project announced in grams. In 2010, we invested approximately $70 million in these pro-Ohio but not yet commission approved. grams that are now being operated throughout most of our service In addition to our wind and solar efforts, initial testing of bio- territory, and we expect they will continue to grow.fuels at some coal units started in 2010. Biomass pellets wereco-fired with coal at two AEP Ohio coal plants. Biodiesel used The Role of Carbon Capture & Storagefor unit startup and flame stabilization was also tested at one We expect to complete our assessment of the Mountaineer CCSof the coal plants. Following the testing period, AEP received validation project, which is based on a chilled ammonia technologyapproval from the Ohio EPA for the operational use of biodiesel at patented by Alstom of France, this year. Through 2010, AEP cap-three coal units. In addition to traditional biofuels products, we tured more than 27,000 metric tons of CO2 and stored more thancontinue to evaluate emerging fuel products and technologies. 17,000 metric tons underground. While this is a very small quantity Although our renewable goal remains 2,000 MW, the reces- (less than 1 percent) compared with the power plant’s total CO2sion and regulatory resistance have slowed our progress and we emissions, it is the first demonstration in the world of its kind.are not likely to meet it by the end of 2011. Just as with some of our On the basis of the validation project, we initiated a commer-clean coal projects, regulators are less inclined to approve renew- cial-scale project to capture and store CO2 from a 235-MW streamable energy projects without a legislative mandate if they result in of flue gas from the 1,300-MW Mountaineer Plant’s emissions,higher costs for customers, which is almost always the case. Read using Alstom’s chilled ammonia technology. The project team willmore online at www.AEPsustainability.com. complete the initial engineering and design phase in the third quarter of 2011. The DOE agreed to pay 50 percent of the project costThe Role of Energy Efficiency up to $334 million. We also will receive funding from the GlobalEnergy efficiency is often viewed as one of the most important fuel Carbon Capture & Storage Institute, based in Canberra, Australia.sources of the future. Increasing the efficient use of energy would The Institute will provide $4 million to support the initial engineeringcontribute to achieving climate change reduction targets, help work. This project is scheduled to be completed in 2015.delay the need to build new generation and reduce environmental However, the balance of the funding is uncertain. Given regula-impacts. AEP has increased its commitment to energy efficiency in tor reluctance to pay for nonmandated technology, we continue tothe last three years, partially as a result of input from stakeholders evaluate options.and support from regulators and customers. We set an internal goal to reduce 1,000 MW of demand and2,250,000 megawatt-hours (MWh) of energy consumption on our The Timber Road Wind Farm, under construction in Paulding County, Ohio, will provide 99 MW of carbon-free electricity when it goes into service in mid-2011. 2011 AEP Corporate Accountability Report 31

P roviding a safe, stimulating and rewarding workplace is the ence and knowledge. Most left the company through a voluntary most important thing AEP can do for its employees. Envi- severance program, though there were some involuntary sever- ronmental stewardship, safety and health are core values ances, too. We had done everything we could since the global eco- that employees take to heart. As a result, 2010 was one of nomic collapse in late 2008, including a hiring and salary freeze, tothe best years for employee safety performance in our history. Our avert this reduction. It was a difficult but necessary step to keepboard of directors proudly recognized this achievement in a special AEP strong and sustainable for our shareholders, customers andresolution that was unanimously adopted (read the board’s resolu- employees in the longer term.tion online at www.AEPsustainability.com). One of our greatest challenges during these difficult economic We are deeply grateful that no AEP employees lost their lives times has been keeping employees focused on working safelywhile on the job. But we know we can still do better at prevent- despite the distractions. We learned how valuable it is to have gooding harm because injuries are preventable. We give employees the management systems to capture knowledge and expertise for thetools and training to work safely and strive to foster an environment future, as well as human performance tools that help prevent errorsthat allows anyone to stop a job if safety is at risk. We are also put- that lead to injury. We increased our communication about safetyting more emphasis than ever on contractor and public safety. and health to all employees. We also provided leadership training Change is the norm in today’s business climate. Successful for the 300 first-time leaders who emerged from the restructuring.companies are able to effectively manage risk, solve problems, The changing demographics that were heralded a decade agoquickly adapt to new situations and identify new opportunities and are here today. Our work force is more diverse, there are multiplecapitalize on them. As a result, they gain a competitive advantage. generations working side by side and our employees have newThe diversity, talent, knowledge, insight, experience and imagina- and different expectations about their careers. In response, we’vetion of our work force provide the means to achieve sustainable made our culture much more open and inclusive, employees aregrowth. We have to understand and respond to the shifting values encouraged to interact with each other and with management andof today’s work force if we want to fully use our employees’ talents we celebrate diversity. We believe this environment fosters highand continue to attract, motivate and retain the best and brightest. involvement and shared commitment among our employees, and As our business operations are in transition, so is our work our safety and health performance is one measure of the depth andforce. In response to a continued sluggish economy and lower effectiveness of that cultural shift.demand for electricity, we reduced our work force in 2010. Weended the year with 18,712 employees, compared with 21,673 at Our Performancethe end of 2009. We lost the equivalent of 81,000 years of experi- When it comes to safety lapses, our goal will always be zero – zero AEP’s work force had one of its best safety performances ever in 2010, with both the number and severity of 18,712 injuries declining. number of AEP employees at end of 2010Social Performance: Work Force32 Social Performance: Work Force

www.AEPsustainability.comerrors, zero incidents, zero harm. It is a very difficult goal to achieve 2009 EMPLOYMENT DATA — EEO-1 (as of Aug. 31, 2009)but one that we are absolutely committed to. In three of the last Employees Females (%) Minorities (%)five years, we have had no employee fatalities. Although 2010 was Total Employment 21,737 4,013 (18.5%) 3,174 (14.6%)one of our best years for employee safety performance in terms Officials & Managers 3,629 382 (10.5%) 305 (8.4%) Professionals 5,544 1,450 (26.2%) 836 (15.1%)of the number and severity of injuries, people were still harmedand that is not acceptable. Slips, trips and falls again accounted 2010 EMPLOYMENT DATA — EEO-1 (as of Aug. 31, 2010)for the most incidents. Fortunately, there was a major reduction Employees Females (%) Minorities (%)in injuries caused by electrical flashes, which are among the most Total Employment 18,650 3,417 (18.3%) 2,732 (14.6%)life-threatening of injuries. Officials & Managers 3,200 367 (11.5%) 261 (8.2%) We completed our first five-year Path to Excellence in 2010, Professionals 4,427 1,240 (28.0%) 684 (15.5%)setting a course for achieving top-quartile performance amongpeer companies in terms of recordable injuries and the sever-ity of injuries that result in lost work days. While our performance to lead by example and held a safety summit with all safety profes-improved significantly during this period, unfortunately there were sionals. The message was that management wanted to hear fromtwo employee fatalities in 2009 and one in 2006. the field about how to improve safety and health performance and We will now set a new five-year goal to achieve top-decile per- establish a zero-harm culture. These expectations led to the forma-formance. To reach this level, we must achieve a recordable injury tion of new safety committees and hourly worker participation inrate of 0.97 and a severity rate of 19.94 for 2011. This compares management meetings that focus on safety-related issues.with actual 2010 performance of 1.05 and 22.62 (excluding River Dolet Hills Lignite Co. in Louisiana, where one of the 2009Operations), respectively. Activities focused on proactive preven- fatalities occurred, faced significant challenges stemming fromtion will be reflected in how we measure success going forward. Mine Safety and Health Administration (MSHA) inspections in 2010. Some of our business units outperformed our corporate goals The agency issued 47 citations during a month-long, full-facilityin 2010. Among them was our Fuel, Emissions and Logistics (FEL) inspection. In response, a team of safety and process expertsorganization, where both employee fatalities occurred in 2009. from across the FEL organization made several recommendationsInvestigations of those fatalities revealed areas in need of improve- for changes following a two-week review. This high level of col-ment that were subsequently addressed. In response, unit manag- laboration, enabled by the culture shift occurring throughout FEL,ers, led by senior management, made a personal commitment to has made Dolet Hills a safer, more efficient operation. In our Riverachieve zero harm. They set specific expectations for management Operations group, “Let’s Talk” sessions reached more than 1,000 crew members with a day-long safety refresher; in 2010, all fleet81,000 workers in the Gulf and all new hires also received in-water training. When people fall overboard, it is often life threatening. There were three overboard falls last year; thankfully, none resulted in a fatal- ity. Teaching employees how to recover if they fall overboard and instituting portable fall protection for our barge washers were someyears of experience of the changes instituted. The FEL team made safety 25 percent of its incentive compensation plan for 2010 and will increase it to 30 percent in 2011.& knowledge lost as In addition, the FEL senior management team participates in safety audits and attends safety meetings with employees.a result of work force The renewed focus on safety is paying off. Dolet Hills reduced the number of citations from 47 to only 15 in its latest MSHA inspec-restructuring tion cycle. The lignite mining operation also achieved a recordableWe encourage open, candid dialogue among our employees. It has beena slow, deliberate path, but we believe we are well on our way to buildingthe kind of open culture we need and want for sustainable success. 2011 AEP Corporate Accountability Report 33

rate of 0.74 in 2010, compared with 0.90 in 2009 and an indus- work performed by contractors; and training and mitigation proce-try average for surface mines of 1.90. River Operations achieved a dures for asbestos projects completed by AEP employees.recordable rate of 0.99, while AEP achieved a 1.05 recordable rateoverall. As a point of comparison, River Operations’ previous best Embracing a Zero-Harm Culturewas 1.52 in 2009. With the right standards and processes, leadership commitment, In our Engineering, Projects and Field Services (EP&FS) orga- and a sense of responsibility and accountability among employ-nization, which relies heavily on a contract work force, the man- ees, we believe a zero-harm culture can be created and maintainedtra is “target zero.” This group believes that working in a power throughout AEP. Leaders at all levels are expected to embody theseplant does not mean that injuries are inevitable, whether you are values and cultivate an environment that encourages employees toan employee or a contractor. And in 2010, EP&FS achieved a 0.66 make safety a priority and to look out for each other. This includesOccupational Safety and Health Administration (OSHA) recordable stopping a job when conditions change and safety and health areinjury rate on the projects it managed. This is 69 percent better than at risk. While we are making progress toward this goal, we still havethe top-quartile performers within the nation for similar projects. work to do, including focusing more on behaviors and less on sta- An important improvement tool is our ongoing implementa- tistics. Too often we tell employees what we want them to achievetion at our fossil and hydro plants of the Occupational Health & but not what we want them to do. They need to know both.Safety Assessment Series (OHSAS) 18001 safety and health man- We want an environment where employees are encouragedagement system. This is being done in conjunction with the Inter- to report all events. We recognize that, as people become morenational Standards Organization (ISO) 14001 environmental man- comfortable with reporting safety and health events, an increase inagement system. These systems provide document-based routines recordable events is likely. To get there, our employees need assur-for managing health hazards and risks, policies and procedures, ances of consistency, transparency and fairness in how they areand requirements and priorities using a collaborative tool and treated when an event happens – in other words, a “just culture.”document control system. This ensures that our employees’ know- There are still too many near-misses. These are events thatledge and expertise is captured for the future where everyone may appear minor but could have had much more serious con-can access it, rather than in a notebook or in someone’s head. sequences. Several incidents in 2010 easily could have resultedWe plan to implement these management systems at all of our fos- in serious injuries or fatalities. We are analyzing such events tosil and hydro plants by the end of 2012. understand why they happened and how they can be prevented. We also perform regular internal audits of our safety and health We can’t rely on luck to prevent injuries. Creating and followingcompliance processes. Ten significant safety and health audits well-designed policies and procedures, using error reduction toolswere completed across the company in 2010, identifying and raising such as Human Performance and looking out for each other are thebusiness unit awareness of compliance and process gaps. Identi- steps that will get us to zero harm.fied opportunities for improvement included aspects of inspection Human Performance is an error reduction initiative that putsand preventive maintenance programs for lifting devices, such as barriers in place to prevent mistakes that lead to injuries. Everycranes and hoisting equipment; oversight of asbestos abatement business unit is using some component of Human Performance toEmployee Safety & Health Path to Excellence( recordable injury rates ) ( injury severity rates ) Severity Days Target 1.45 Target 30.07 2008 2008 Actual 1.00 Actual 26.94 5,577 Target 1.27 Target 25.56 2009 2009 Actual 1.13 Actual 29.13 5,924 Target 1.00 Target 21.73 2010 2010 Actual 1.05 Actual 22.62 4,229 2011 Target 0.97 2011 Target 19.94Recordable injury rate = total deaths + lost work injuries + lost work illnesses Average injury severity rate = lost work days + restrictedx 200,000 ÷ hours worked activity days x 200,000 ÷ hours workedExcludes AEP River Operations Excludes AEP River Operations2008 – 2010 performance includes hearing loss Excludes hearing lossStarting in 2011, goals will exclude hearing loss Severity days represent lost productivity due to lost work days or restricted duty34 Social Performance: Work Force

www.AEPsustainability.commitigate the risk of employee injury. Some organizations are farther and affected business units whenever a significant incident occurs.along than others, making it challenging to determine its overall Read about how AEP’s safety culture is influencing contractors atimpact on performance. www.AEPsustainability.com/ourissues/workforce/.Welding Survey Leads to New Requirements Taking the Electric Safety Message to the PublicOur employees and contractors who perform various types of Protecting the public from contact with our electrical facilities is awelding will have new requirements later this year to better con- chief goal for AEP but one of the most difficult to achieve. We havetrol exposure to potential health hazards associated with welding little control over the decisions people make when they are in prox-fumes. Our Industrial Hygiene team conducted the largest known imity to our lines and equipment.study of welding fume exposures in the electrical industry. We col- The main public safety risks are experienced by “weekendlected and analyzed more than 550 air samples representing expo- warriors” performing household and yard duties; contractors whosure to employees performing all types of welding tasks. The study, are not working for AEP, such as highway construction personnel;combined with research into the recent science of potential health and people working on billboards.effects of exposures to welding fumes, led to a major revision of our As copper prices have risen and the economy has stagnated,welding policy. copper theft has increased in certain areas. In 2010, three of the The heating processes from welding or cutting create metal nine public fatalities and four other electrical contacts stemmedfumes that are easily inhaled into the lungs, where there is poten- from copper theft. Read more about AEP’s public safety efforts attial to cause harm. Metals commonly found in welding or cutting www.AEPsustainability.com/ourissues/workforce/.include aluminum, beryllium, cadmium, copper, iron, zinc and oth-ers. OSHA doesn’t regulate the metal fumes from welding as a Preparing Our Company and Our People for the Futuresingle standard but regulates them individually. Our new policy will While reining in spending and protecting the company’s financialtake effect in October 2011 to give work groups and contractors health has been essential, it has also been painful at times. On thetime to prepare. The policy takes additional precautions to minimize one hand, the work force reductions have led to heavier workloadsexposure and sets new limits for exposure to some types of metals. for many employees. This jeopardizes the work/life balance we strive to achieve. Some work groups were reduced by half. Em-Contractor Safety a Priority ployees and their leaders are working together to identify processMore and more, how a company manages its contractors affects improvements and efficiencies to get the work done.its safety performance, risk management and corporate reputation. At the same time, the restructuring has given employees op-This became abundantly clear in 2010 in the wake of the Deepwater portunities to be creative and take on new assignments, progressHorizon oil leak in the Gulf of Mexico. If contractors aren’t following within their current jobs or move into leadership roles. There areproper procedures, our own employees can be at risk – and we approximately 300 first-time leaders across the company, many ofdon’t want anyone who is working for AEP to be harmed. whom were front-line workers until recently. We’ve launched a lead- Tragically, three contractors were fatally injured while working ership training program to help this group develop leadership skillsfor AEP in 2010. Two were killed while setting up their work zone as quickly as possible.on a busy highway in Kentucky, and one was trimming trees in a Groups throughout the company are exploring how to adapt totransmission right of way in Oklahoma. a smaller work force and become more efficient – by working differ- We want our contractors to be as committed to safety as we ently, eliminating work or making greater use of technology. Quicklyare. We are working more closely with them to make sure they “recasting” work is especially challenging where high numbers ofknow what we expect. time-sensitive transactions involving customers or employees are The recordable injury rate target for contractors was set at1.80 for 2010, and those business units that tracked contractorperformance achieved a rate of 1.66, better than the target. We Targeted Contractor Recordable Rate Path to Excellencehave established a contractor Path to Excellence beginning in 2011,when the performance of all our major contractors will be tracked 2011 1.70 regardless of the business unit contracting the work. The record- 2012 1.60able rate target for 2011 is 1.70. 2013 1.50 Our approach to contractor safety calls for one-on-one meet-ings with contractors to review their work practices and provide 2014 1.40them with information about ours. The contractors are expected to 2015 1.29develop an action plan about how they will keep events from recur- Contractors covered by this target are defined as large O&M contractors suchring, and a “significant event call” is scheduled with AEP executives as construction, tree trimmers, etc. 2011 AEP Corporate Accountability Report 35

required, as in our Customer Solutions Centers and the Human power plants and maintain existing ones in collaboration with theResources Service Center. While the reorganization has led to Fossil & Hydro organization. Today, because we are building fewersome short-term negative effects, we have taken actions to remedy plants, fewer employees are required to perform this work. Butthese problems. there are still engineering and design needs, some of which are The work force reductions in 2010 lowered the median em- handled in-house and some of which are outsourced.ployee age from 49 to 47 and the percentage of Baby Boomersdeclined from 48 percent in 2009 to 40 percent in 2010. Nonethe- The Value Proposition of Wellnessless, like many other utilities, AEP continues to face an aging work Today’s economic realities force companies to look for everyforce. We take this into account as part of our ongoing work force opportunity to reduce their operating costs. Health care costs, oneplanning efforts. However, projecting ahead more than a few years of the largest items on any company’s ledger, are an obvious target.involves certain assumptions that may or may not materialize. It is no different at AEP. But we believe that cutting costs without improving the health of our work force is short-sighted and will beEveryday Innovation more expensive in the longer term.We are a different company today than we were just a few years The challenges in this area are enormous. The cost of high-ago, and the future is also looking much different than what we quality health care continues to rise annually. AEP, which self-envisioned. The evolution is just beginning. A big challenge as we insures, covers approximately 80 percent of employee medicalprepare for the future is that we aren’t certain which skills will be plan costs. The company’s annual net cost of providing this ben-most needed. But we know that one critically important charac- efit in 2009 was approximately $250 million. Between 2010 andteristic will be a willingness to innovate. Even now, employees are 2015, we expect health care costs to increase 42 percent, or morefinding new ways to get work done with fewer people. than $21 million per year. This is unacceptable and we are devel- The stronger operating-company business model, which en- oping programs to address this issue.trusts greater decision making and accountability to operating com- Our strategy to stem this tide is to shift cultural norms bypany management, serves as a catalyst for some of these changes. teaching our employees and their families how to stay well and howFor example, Cook Plant and our Indiana Michigan Power subsid- to use their benefits optimally; building skills needed to changeiary are finding that working together is helping each understand behaviors that threaten their health; and showing them how toand address the other’s needs. Each now has a seat at the other’s maintain positive, healthy behaviors. If we succeed, our employeesmanagement team table. This did not happen routinely before. and their families will be healthier and costs will decline for the com- There are other examples. The EP&FS business unit tradition- pany and for employees.ally was the organization to engineer, design and construct new The tools we use to manage costs are a comprehensive wellness program and consumer-driven health plans that help employ-Demographics at AEP in 2010 ees make better decisions about managing their health care. April 2010 July 2010 Change Our “AEP Wellness … Energy for Life” program has completedAverage age 46.7 years 45.0 years – 1.7 years its third year with overall positive results while helping employeesMedian age 49.0 years 47.0 years – 2.0 years achieve the work/life balance we seek. Approximately 36 percentAverage years of service 17.3 years 15.5 years – 1.8 years of eligible employees and 32 percent of their covered spouses orAverage annual wage $ 68,235 $ 67,452 – $ 783 domestic partners completed all three steps of the program – aNumber of employees 21,127 18,265 – 2,862 employees health screening, health assessment questionnaire and health im-28% $250 2010 AEP Work Force Demographics n Generation X 50.3 % (1961 – 1981) n Baby Boomers 40.3 % (1943 – 1960)of AEP work force million n Millennials 9.3 %represented by (1982 & after) n Traditionalists 0.1 %a union (1942 & before) paid for employee health benefits – 200936 Social Performance: Work Force

www.AEPsustainability.comprovement program. Health improvement programs include health Organized Labor at AEPcoaching, wellness condition management for certain chronic con- Labor Union Number of Employeesditions, maternity management and cardiovascular activities. International Brotherhood of Electrical Workers 3,327 Utility Workers Union of America 1,163 United Steelworkers of America 512Our Corporate Culture & Values United Mine Workers of America 282A strong corporate culture is built around openness and collabo- International Union of Operating Engineers 2ration while fostering community and communication that extendbeyond company walls. employees are represented by unions. We worked closely with We are committed to open, candid and honest discussions union leaders during our restructuring to ensure they understoodwith our stakeholders and we encourage the same dialogue among what we were doing and why we had to do it. They were collab-employees. It has been a slow, deliberate path, but we believe we orative and supportive throughout the process. The company andare well on our way to building the kind of open culture we need and labor frequently work together on projects that support our com-want for sustainable success in the years to come. munities, such as United Way and Operation Feed in Central Ohio. This openness is fostered through the company intranet site, Diversity of the work force in 2010 was affected very little byAEP Now, where employees can react to news items and stories last year’s severance program. Approximately one-third of our em-about company events and people. They also can comment on ployees are minorities or females. In 2010 as in past years, we setinternal blogs, including one written by CEO Mike Morris entitled diversity targets for females and minorities for management, pro-“Wide Open.” The culture of openness was especially evident dur- fessional and front-line positions. Placement rates in three of the sixing the restructuring that followed 2010’s work force reduction. job categories exceeded target: females in the management andEmployees shared ideas and even criticized or questioned corpo- professional categories and minorities in front-line posts. We maderate decisions without fear of reprimand. The most viewed stories progress in our placement rate for minorities in management andon AEP Now in 2010 involved the severance program and its effects professional positions but were unable to reach our targets, largelyon the company, and dozens of employees posted reactions to due to the work force reorganization.those pieces. Read more about this in Stakeholder Engagement. AEP is committed to providing opportunities for small, minor- We rely on these attributes to guide us and they are embodied ity-owned and women-owned businesses. We view supplier diver-in all that we do. Wherever we go, our culture goes with us. Future sity as a business imperative, and we’re focused on continuouschanges in senior management are not likely to alter this culture improvement as a way to maximize business effectiveness andof openness. It is becoming an entrenched part of AEP that could operational efficiency. Adoption of a new supplier registration toolhelp attract new employees as well as retain existing talent. in 2010 and increased educational outreach efforts will help us to identify new opportunities for diverse suppliers.Labor Relations & DiversityWe have an excellent relationship with our labor unions. Laborunions have worked with AEP leadership not only on the financialchallenges we have faced during the economic downturn, but alsoin major legislative, regulatory and work force-related initiatives. The restructuring in 2010 didn’t change the demographicsof our represented work force; approximately 28 percent of our Contractor safety is taking on greater emphasis at AEP as we institute a Path to Excellence for contract workers. These contractors are working on a transmission project in West Texas. 2011 AEP Corporate Accountability Report 37

E ach year that the United States fails to enact a comprehensive on today’s concerns but tomorrow’s needs, especially in regard to energy policy, two things happen: The nation’s energy future energy. America is at a crossroads: One road requires investment is put in greater jeopardy, and AEP’s public policy function today that will bring us new supplies, including more renewable, becomes an evermore important aspect of what this com- nuclear and clean-coal energy tomorrow. The other road fosterspany does. lower prices today but leads to higher prices in the years ahead and When the economy slows, energy often becomes the public a much more uncertain energy future. Unfortunately, it is far frompolicy stepchild. The nation’s focus turns to protecting jobs, main- clear which path the nation will choose.taining family incomes and managing government revenues. The As the prospect for climate change legislation has receded,Congress’s failure to pass significant energy legislation in 2010 the attention to other environmental regulations affecting the powerreflects that pattern. sector has grown. In 2010, the U.S. Environmental Protection As AEP deals with issues such as climate change, environmen- Agency (EPA) proposed new rules for air emission reductions andtal regulation, transmission policy, rate regulation, inland waterway the disposal of coal ash with additional proposals in 2011 for airmaintenance and others, we recognize that our public policy efforts and water. These proposals raise serious concerns for us aboutare a basic element of our success. We realize we have a respon- the timing for compliance, the ability to secure the billions of dollarssibility to be truthful, honorable, fair and transparent, and to serve in capital that will be needed and the potential reliability risks cre-the interests of many diverse stakeholders. Because congressional ated by the proposed timetables. Read more about our positionsinaction is likely to lead to an even greater collision between energy on these issues, how they will affect AEP and what we are doing insupply, increasing demand and prices, environmental policy and Environmental Performance.international dynamics, we expect to be even more involved in pub- During 2010, we engaged in a robust advocacy campaign onlic policy matters in the future. these issues, educating our state environmental regulators, elected Our goal remains to deliver safe and reliable energy at the most officials, customers, employees and other stakeholders about thereasonable cost to our customers. We have taken our own steps implications of these rules and asking for support of our positions.to trim corporate expenses, including reducing the size of our work Many of these stakeholders shared our concerns and communi-force during the past year, reducing travel, cutting our own energy cated that to the EPA.use and improving operating efficiencies. However, we also believe Rather than isolated rules that often are not coordinated andthat the nation’s energy future is put at more risk by inaction and fail to consider the impact on the nation’s electrical system or ourshort-sighted decisions that consider only today’s circumstances. communities, we support a more comprehensive approach that We believe that strong public policy must be based not only considers the impact of plant closings on the nation’s grid and sets $642,000Track Record of Rate Changes ( in millions )2006 $ 450 2007 $ 352 2008 $ 527 2009 $ 659 employee contributions to AEP’s federal PAC in 2010 $329 2010 $ 329n 2011 Estimated Pending/future rate cases include cases yet to be filed $ 235 millionNote: Rate changes in this chart exclude revenues with offsetting costs. in rate increases in 2010Social Performance: Public Policy38 Social Performance: Public Policy

www.AEPsustainability.coma more rational time frame for compliance. AEP alone would save oxide, mercury and other 2009 Median Household Income by State ( two-year average in dollars )billions of dollars in costs, retain more jobs and affect our commu- emissions, electricity will AEP States Amountnities less severely if allowed to spread these major environmental become more expen- Arkansas $ 37,987projects over a longer period. sive. AEP has spent more Indiana $ 45,324 than $5 billion on numer- Kentucky $ 41,828The Cost of Electricity ous environmental up- Louisiana $ 42,423The cost of electricity is critical to our customers. Even though our grades since 2000. These Michigan $ 47,797rates remain below the national average, our customers generally expenses ultimately are Ohio $ 46,318live in lower-income regions and are particularly sensitive to rate reflected in rates and Oklahoma $ 45,907 Tennessee $ 40,034increases. In addition, much of our service territory was affected by make energy more expen- Texas $ 46,895the loss of manufacturing jobs in our region. A comparison of state sive. In fact, the American Virginia $ 61,126median incomes shows that virtually all of our states are below the Coalition for Clean Coal West Virginia $ 39,170national median income. Electricity, an advocacy United States Average $ 49,945 This is particularly true in our Appalachian Power and Ken- group we support that Source: U.S. Census Bureau, Currenttucky Power service areas. Both companies have seen rising cus- promotes the use of coal, Population Survey, 2007 to 2010 Annualtomer complaints due to recent rate increases. Customers of both reports that half of U.S. Social and Economic Supplements.operating companies have voiced protest in person, in petitions, on households will devote atsocial media outlets and through legislators who are taking a more least 20 percent of their after-tax income to residential and trans-active role in opposing rate increases for their constituents. As the portation energy in 2011. That number was 12 percent in 2001.economy remains weak in both areas, we can expect continued Higher gasoline prices are a large part of this increase, but it’s clearresistance and opposition to future rate increases – and vocal criti- that escalating energy prices have a disproportionate effect oncism from customers who are finding it increasingly difficult to pay lower-income households.their electric bills, particularly during the coldest and hottest times As regulators and customers approach the limits of what theyof the year. are able or willing to pay for electricity, our ability to develop newer The fact remains that coal is still among the most affordable but more expensive forms of energy, such as wind, solar, biomassgeneration sources in the nation and largely is the reason behind and clean coal – at the pace we had anticipated a few years ago –our low rates. But as the nation addresses issues such as climate is affected.change and the need to further reduce sulfur dioxide, nitrogen In addition, we plan to install technologies such as smartThe M/V Mariner and a tow of 15 coal barges prepares to leave the Newburgh lock on the Ohio McDonald’s franchiseeRiver near Newburgh, Ind., as the M/V Hoosier State and its barges get ready to enter. AEP and Appalachian Powersupports legislation that would improve the nation’s inland waterways and navigation system. customer Sherry Wolf demonstrates the electric vehicle charging system she installed at her restaurant in Huntington, W.Va. Wolf and her husband, Tom, invested in the system to encourage the use of electric vehicles.As regulators and customers approach the limits of what they are able or willing topay for electricity, our ability to develop newer but more expensive forms of energy,such as renewables and clean coal, at the same pace we expected a few years agois affected. 2011 AEP Corporate Accountability Report 39

meters and smart grid systems that will give customers far more customers because our rates have always been among the lowestability to control their energy use and costs. However, these will be in the state. With recent changes in the market, however, somedeployed only where regulatory approval is certain. For example, competitors are able to undercut our regulated rates to certain cus-we likely will not meet our goal of installing smart meters throughout tomers, particularly commercial customers. The lost load has notour customer base by 2015 without additional regulatory support. significantly harmed our business at this time. We formed a subsid-We will work with all of our regulators to advance new forms of iary, AEP Retail Energy, which also allows us to offer competitiveenergy and deploy new technology as quickly as we can, but we services in deregulated states, including Ohio and Texas.can do so only when they permit us to obtain cost recovery. In addition, Demand Response Curtailment Service Providers are currently enrolling AEP retail customers in demand responseNERC Security Standards programs sponsored by regional transmission organizations, suchAll bulk power system owners, operators and users, including as those offered by PJM Interconnection. We contend that it isAEP, are now required to comply with system reliability standards not appropriate for retail customers, who are taking service underdeveloped by the North American Electric Reliability Corp. (NERC). regulated retail rates, to participate in wholesale market-basedOperating under the auspices of the Federal Energy Regulatory programs under the current rules and arrangements. The currentCommission, NERC is charged with developing and enforcing structure allows a select few customers to independently benefitthese standards to ensure the reliability and security of the nation’s from generation capacity that is dedicated to serving all retail cus-electrical grid. NERC standards became mandatory in 2007 and tomers. In addition, we are working to correct the rate inequitiesfines for violations can be significant. that have prompted customers to shop for less expensive power. AEP has created a cross-functional team of executives from We believe that participation by retail customers in such pro-the Transmission, Legal, Regulatory Services, Commercial Opera- grams should be offered only through their utility and under termstions, Generation, Shared Services, Corporate Planning and Bud- approved by the responsible state regulatory commission. Thisgeting and Distribution groups to implement new compliance arrangement would allow the costs and benefits of such programsrequirements. These include training for all employees in areas to be shared among all retail customers. We continue to work withsuch as proper record-keeping procedures, cyber security and our state public service commissions on this issue.physical access rules for critical facilities. NERC is scheduled to conduct an extensive audit of AEP’s Inland Waterway Improvementscompliance with the reliability standards later in 2011. We expect to The poor state of our nation’s inland waterways transportationbe prepared for the audit but also realize that it may uncover system infrastructure is a serious issue for us and for the nation. We oper-risks. Penalties largely are determined by the risk factor associated ate one of the nation’s largest inland barge companies, and thewith the violation as well as the severity level. Read more about thisissue in Energy Security, Reliability & Growth. AEP Barge Transportation is Cost EffectiveRetail Energy & Curtailment Service Providers 1 Barge = 14.4 Rail Cars = 70 Tractor-TrailersThe development of a competitive electricity retail market in Ohio– our largest state in terms of revenues, employees and custom-ers – presents a challenge to AEP. While competition has existedin Ohio since 2000, there were few attempts to sign up AEP OhioAEP’s Mike Morris, Scott Osterholt and Karen Sloneker join U.S. Energy SecretarySteven Chu on a tour of the mobile gridSMART ® showcase.40 Social Performance: Public Policy

www.AEPsustainability.comdecay of the lock system on the Mississippi and Ohio rivers is caus-ing costly river traffic delays and adding to the expense of hauling Our Customers Speak Outthe millions of tons of coal, grains, metals and other commodities about Rate Increasesthat we ship. More than half of the 240 operational lock chambers run by As energy bills continue to increase, cus-the U.S. Army Corps of Engineers are over 50 years old. We rely on tomers in some of our hardest-hit servicebarges to deliver coal from various places along the Ohio River and territories have expressed their anger. We are sensitive toupstream, including western coal from our Cook Coal Terminal in the effect that higher rates have on our customers. OurMetropolis, Ill. Increasingly, broken and undependable locks raise goal is to deliver reliable energy at the lowest cost pos-our costs and affect our ability to deliver to our customers on time. sible, but new environmental regulations will require sig-For example, coal delivery costs increased $1.7 million as a result nificant investments in our plants to comply. Customersof closure of just one facility in 2010. Lock 52 near the Cook Coal posted these comments about their bills in online forums: “Terminal was closed for 32 days. That same closure increased our I think there will be a lot of people this winter whosecommercial hauling costs by about $2.9 million. electricity will get turned off because they can’t pay their The Army Corps of Engineers, which maintains and operates bill. I will probably be one of them. We have three kids andthe inland waterways, recognizes the problems but has not received we have to have electricity and we have to have food. Butadequate funding from Congress to address them. AEP supports if worse comes to worse, I will burn candles and use kero- ”adoption of the Inland Waterways Capital Development Plan, which sene if I have to ’cause food is more important.would include a 30 percent to 45 percent increase in the fuel tax – A Kentucky Power customer writing in an online forum in responsewe pay for our barge operations, to fund capital improvements over to an increase in electricity ratesa 20-year period. That proposal did not make the legislative cut inCongress in 2010. But we will continue to advocate on its behalf. The nation’s waterways provide an efficient, safe, low-cost, “ Last month my bill was $188 for 1,888 kWh. In Decem- ber 2008, it was $128 for 1,890 kWh. … Something is wrong with this picture. … I have e-mailed AEP severallow-impact mode of annually transporting approximately 600 mil- times, SCC (Virginia’s State Corporation Commission) sev-lion tons of commodities valued at $70 billion, according to the eral times so now I am on to my congressman, my senatorArmy Corps of Engineers. Shifting even part of that load to rail or and delegates. I hope you guys will join me in making yourtrucks would result in more congestion, more fuel consumption, ” voice heard.more pollution, higher road maintenance costs and higher overall – An Appalachian Power customer’s comments on Facebook abouttransportation costs for coal, grains, other commodities and manu- higher electricity bills in Virginiafactured goods. Repairing the lock system will benefit not only AEP and theelectric industry but the nation’s economy and the environment. AEP continues to be politically active through its political actionPolitical Involvement committees (PACs) as well as through direct corporate contribu-Like many companies, we support candidates and legislation that tions where permitted by law. We maintain lobbyists in Washington,we believe are in the best interest of our company and our stake- D.C., and in each state where we have operations, except in Ten-holders. We have a responsibility to be forthcoming about our polit- nessee, Illinois and Missouri. Our full-time lobbyists work closelyical and lobbying activities and to make sure that we are not saying with our employee-run PACs to direct contributions to candidatesone thing in public and doing something else in the political arena. and officeholders who will best represent our interests. We have many different constituencies and interests that are AEP’s federal PAC contributed approximately $582,000 tonot always aligned or in agreement. We therefore try to be mea- candidates in 2010 and received about $642,000 in contributionssured and balanced in taking public policy positions. We work to from employees. AEP operates state PACs in Ohio, Michigan, Texasidentify and weigh the environmental, economic and social issues and Virginia. Reports about each PAC’s activities are available atinvolved in any specific piece of legislation or policy paper. We seek www.fec.gov and the respective state websites. We spent morecommon-ground solutions wherever possible and attempt to align than $10 million on federal lobbying efforts in 2010. Approximatelyour interests with those of others whenever we can. $4.5 million of the dues or payments we made to trade organiza- Sometimes we are faced with difficult decisions that please tions also was designated for lobbying activities. We post reportssome AEP stakeholders and displease others. The best we can do on our activities to our website at www.AEPsustainability.com/ouris to be open and candid about our rationale and invite discussion issues/publicpolicy/lobbying.aspx, including breakdowns of whereand dialogue with those who have differing viewpoints. To find out the money went.more about how we do this, please see Stakeholder Engagement. 2011 AEP Corporate Accountability Report 41

O ur ability to succeed as an organization and to deliver finan- As we create a culture of openness within AEP, we have en- cial and social value is tied directly to the strength of our couraged a similar culture of openness with our stakeholders. It is relationships with our shareholders and with other stake- not uncommon for leaders of environmental groups or governors holders. We provide an essential service to society and to in our states to call our chairman or other senior executives to dis-local communities that requires us to be accountable, transparent cuss issues, raise concerns or challenge our positions or actions.and trustworthy. In addition, our operating environment is chang- We feel free to call them on the same basis. Last year, for example,ing dramatically and becoming significantly more complex, and we we organized stakeholder calls, chaired by Mike Morris, to answermust work with all of our stakeholders to evolve and thrive in it. questions about our position on proposed EPA regulations. We see We have found that if we work with our stakeholders in good transparency, accessibility and engagement as important ways tofaith to find common ground, and if we are honest and candid manage our business risks, build trusting relationships, support ourabout our decisions and the basis for them, they will respond in communities and ensure our financial health.kind – even when our views differ sharply. We deeply appreciateand respect stakeholders’ willingness to bring their issues, ques- How We Engagetions and concerns directly to us, and we will always endeavor to In today’s interconnected world, technology enables us to engageearn and keep that trust. with more stakeholders on a broader range of issues. We believe Engagement makes us a stronger, better and more resilient strongly in face-to-face engagement; it is the best way to build trustcompany because our stakeholders: and to ensure that we are being heard and understood and that we• Inform us of key issues that affect people who are important to us. are hearing and understanding others.• Challenge us continually to improve our performance. We began to venture into social media during 2010 to expand• Give us insights into points of view that we may not otherwise our reach and frequency of stakeholder contact. We can have dis- have considered. cussions and also monitor the conversations that people are hav-• Help us see and understand how we are perceived outside of ing about us. This helps us to understand the issues and receive the company. feedback about how decisions and business strategies affect our• Work with us to find common ground and collaborate on com- customers. We compile and distribute a daily summary of social mon objectives. media “chatter” about AEP and key issues to AEP managers.• Hold us accountable for our actions and impacts. We now have a social media governance committee and pol-• Are willing to engage in meaningful dialogue to achieve reason- icy, and more than 100 people across AEP are regularly and offi- able solutions. cially using Twitter, Facebook, YouTube and LinkedIn, among other433 thousand AEP Chairman & CEO Mike Morris, left, Dale Heydlauff, vice president of corporate communications, and President Nick Akins during a webcast to employees.number of customers who switched to paperless billing in 2010$75.3 million total assistance provided to AEP customers in 2010Social Performance: Stakeholder Engagement42 Social Performance: Stakeholder Engagement

www.AEPsustainability.comnetworks. We “tweet” during power outages, for example, to give Assistance Provided in 2010 to Help Customers Pay Their Electric Billscustomers instant information about restoration efforts. During one Company 2009 2010 % Changeearly 2011 massive ice and snow storm, more than 500,000 cus- Appalachian Power $ 35,912,830 $ 26,990,405 – 24.8 %tomers in Texas and Ohio were affected by power outages. Twitter Kentucky Power $ 4,514,950 $ 4,586,968 1.6%and Facebook were integral parts of our customer communica- Indiana Michigan Power $ 9,244,881 $ 9,027,788 – 2.3 %tions efforts during these events. Our corporate Twitter account AEP Ohio $ 21,123,833 $ 18,017,939 – 14.7 %has nearly 800 followers (@AEPnews) and our sustainability director Public Service Co. of Oklahoma $ 10,415,763 $ 11,281,714 8.3 %has a separate account with more than 300 additional followers Southwestern Electric Power Co. $ 5,132,579 $ 5,407,410 5.4 %(@Watts4U). Totals $86,344,836 $75,312,224 – 12.8 % AEP and our operating companies were mentioned more than17,000 times in social media arenas in 2010. The most discussedtopics were company news (the employee severance program, A Stakeholder’s Perspectiveleadership changes, etc.), outages, rate cases, investor information,environmental issues and energy efficiency. We invited Allen Hershkowitz, senior scientist at the Natu- Legislators across the country also have begun using social ral Resources Defense Council, to write a brief statementmedia, blogs and other online tools to communicate with their con- about his views on stakeholder dialogue and the impor-stituents and advocate their positions. In some AEP jurisdictions, tance of collaboration between industry, organizations,legislators united with customers concerned about their rising customers and government. Below are two excerpts. Theelectricity prices to voice their positions and create alliances, using entire statement is at www.AEPsustainability.com.some of the same online tools. We held nine stakeholder meetings in 2010, most of them inperson but some by phone. Our discussions focused on such “ The time is long past when dialogue between environmental groups and industry is viewed as either a risk to business operations or selling out. All we’re doing is com-issues as the cost of electricity, the future of coal, energy efficiency,environmental regulations, climate change, supply chain and our ing together to try and find an effective path to resolve ”changing business model. We also published a mid-year update to difficult problems.our website (www.AEPsustainability.com/reporting).Stakeholder Dialogues & Issues “ Needless to say, dialogue does not mean that we abandon our principles or agenda. Indeed, it means bringing our concerns to the negotiation table for discussion.During the past five years, we have engaged with more than 100stakeholders on a wide range of issues. Energy efficiency is often In my case, important differences exist between AEP anda top concern, and last year we formed two stakeholder teams NRDC: We disapprove strongly with the use by AEP of coal ”on the topic. The first brought together a small group of represen- obtained from mountaintop removal mining (MTR) sites.tatives from Ceres, the Natural Resources Defense Council andAEP to talk about increasing energy efficiency through the use ofa rate structure known as decoupling, which would separate util- Last June we formed an external Energy Efficiency Advisoryity income from electricity sales. Prior to forming that group, our Council. The council includes 13 manufacturing, trade, technol-discussion had focused on why some stakeholders supported ogy, environmental and policy experts, who will help us achievethat approach and why we opposed it. We learned that we agreed our energy efficiency and conservation goals and also help driveon many aspects of decoupling and the importance of energy national awareness to change behaviors, support new technolo-efficiency but disagreed on other key points, and our discussions gies and standards, and influence public policy regarding efficiencywill continue. and conservation.It is not uncommon for leaders of environmental groups or governors in our statesto call our chairman or other senior executives to take issue with our positionsor challenge our actions. We encourage this culture of openness and accessibility. 2011 AEP Corporate Accountability Report 43

would consider moving from large-scale centralized power stations to smaller-scale decentralized options. In response, we rewrote sections of our report each year to clarify our business strategy and transition plan, citing a combination of factors that are driving change, including environmental and climate- related issues. We are still developing a transition plan and when it is complete, we will share it with stakeholders. Engaging Our Investors We seek to maximize shareholder value and strongly believe that shareholder return will be higher in the long run if we build strong, trusting relationships with our stakeholders. Engagement createsAllen Hershkowitz, left, senior scientist at the Natural Resources Defense Council, and protects long-term value and is focused on sustainable growth,tours the Mountaineer Plant control room with Plant Manager Charles Powell. which in turn promotes higher returns for shareholders. For example,Hershkowitz visited Mountaineer to become familiar with how coal plants operate. by achieving our financial goals we can provide new opportunities to innovate, achieve cost-saving operational efficiencies, improve The council met twice last year and chose education, codes our environmental performance and create better prospects for ourand standards, commercial lighting and industrial technologies as company and employees. Innovation, cost savings and improvedits priorities for collaboration. Early in 2011, the group sent a letter performance, in turn, help us to improve financial returns. Profitsof support to U.S. Energy Secretary Steven Chu, urging adoption build trust with investors, allow us to fulfill our nonfinancial commit-of the proposed Energy Efficient and Smart Appliance Agreement ments and keep us competitive and financially healthy.of 2010. This agreement would set new minimum energy efficiency Investor outreach is a cornerstone of any successful investorstandards for home appliances, extend and update tax credits relations (IR) function. Approximately 69 percent of our outstandingfor developing and manufacturing smart appliances, and include shares are owned by institutional investors who have an investment“smart grid” readiness as a feature of future ENERGY STAR quali- horizon of more than two years. Our IR team increased its outreachfied appliances. In addition to saving energy, resources and money, to investors by 36 percent in 2010 over 2009. We participated in 40these appliances will enable quicker deployment of smart appli- investor conferences and in-person forums, hosted nine investorances to consumers. Read the letter online at www.AEPsustain- visits to our corporate headquarters in Columbus, Ohio, and metability.com. face-to-face with more than 500 financial investors in five countries. We also meet with stakeholders every year to obtain feedback This robust outreach continues in 2011.on our Corporate Accountability Report before it is published. Ceres, Our discussions most often focus on the legislative and regu-a national network of investors, environmental organizations and other latory uncertainties we face in our 11 states and particularly in Ohio,public interest groups, helps to organize a multistakeholder meeting where approximately 40 percent of our earnings are generated.with AEP executives in our Columbus, Ohio, headquarters. In 2010 Investors are interested in how we will maintain fiscal discipline andand 2011, this group asked us to provide more information on how match our capital expenditures with operating cash flows. Interestour business model is evolving to meet a carbon-constrained future. also remains high in our transmission growth strategy and in theThey also asked us about the role of technology and whether AEP potential opportunities, challenges and financial implications of cli-2010 Charitable Giving by Area of Focus n Education 24 % Total Philanthropic Giving ( Corporate and AEP Foundation ) n Community 14% State 2010 State 2010 Arkansas $ 356,444 Texas $1,631,808 n Arts & Culture 12 % Indiana $1,589,000 Virginia $1,676,385 n Environment 12 % Kentucky $ 428,006 West Virginia $ 2,247,377 n Safety & Health 11 % Louisiana Michigan $ 368,095 $ 714,853 Other * $2,725,615 Total $23,629,826 n Hunger & Housing 9% Ohio $11,149,674 * Giving to organizations outside n Economic Development 8 % Oklahoma $ 709,016 AEP’s service area or those that Tennessee $ 33,553 benefit multiple states n United Way 5% n Youth 5%44 Social Performance: Stakeholder Engagement

www.AEPsustainability.commate change policies and regulations. 2010 Customer Satisfaction Results We have seen a proliferation of enterprises that assess com- Quartile Ranking Survey Type % Satisfied vs. National Peer Grouppanies’ sustainability performance and provide that research to the Residential 82.8% 1stfinancial community. In 2010, we responded to at least a dozen Commercial 89.4% 2nddifferent surveys that queried us on corporate governance, climate Managed / Key Accounts 82.0% 1stand water risk management, political contributions policies and our Call Center Transactions 84.5% NAforestry footprint. We analyzed the results from the largest surveysto understand what information is most important to the research- We survey our customers regularly to assess our service per-ers and, by extension, the investment community. Although we formance and to set internal targets to ensure customer satisfac-don’t agree with the implied emphasis in all cases, we hope to tion, which remained high in 2010. We combine our surveys, con-improve this report by considering that kind of feedback. ducted by a third party, with industry benchmarks of our peers to create a Customer Satisfaction Benchmarking Index. In 2010, AEPConnecting with Customers placed in the 82nd percentile relative to our national peer group inWe are in business to deliver comfort to customers by providing overall customer satisfaction, which exceeded our goal of reachingreliable, affordable, high-quality power “24/7.” The cost of electric- the 75th percentile. Satisfaction levels reached the 91st percentileity has increased significantly in the last five years, which has been relative to a national peer group for large commercial industrial cus-particularly challenging during the recession. Most of the 11 states tomers, the 82nd percentile for residential customers and the 74thin our service territory were already below the national median percentile for small commercial customers.income and were further affected by the recession. Account delinquencies can be a measure of economic growth Our customer service centers are often the first point of con- or downturn. Residential account delinquencies increased signifi-tact for customers who wish to communicate with us. Last year, we cantly in 2010, up 48 percent from 2009. Nonresidential custom-spoke with more customers, for a longer time per call. We spent ers were not immune to the economic climate, either, as the aver-an average of approximately 4.5 minutes per call discussing high age delinquent account balances for these customers increasedbills, the recession and other issues. Call volume into our customer approximately 10 percent from 2009.service centers daily increased over 2009 levels yet remained just We work with customers to keep them from being delinquent,under 50,000. Consequently, the amount of time customers had to providing payment plans and other forms of assistance. We con-wait on hold to talk to us – called the average speed of answer – nect them with energy assistance programs when appropriate.was longer. AEP customers received approximately $75.3 million in energy At the same time, the number of customers conducting busi- assistance last year, a 13 percent decrease from 2009.ness with us online increased. Customers logged in to our utilitywebsites to pay bills or conduct other business more than 4.2 mil- Employee Engagementlion times in 2010. This is nearly double the online customer con- We believe that employee engagement begins with a culture intacts in 2009. The Internet is much more efficient for customers and which employees are free to speak their minds. Our chairman,for AEP. It can reduce the number of calls we handle and on-hold Mike Morris, has advocated and fostered an unprecedented levelwait times. By the end of 2010, approximately 433,000 customers of openness that has changed our culture for the better. Employeesswitched to paperless billing and more than 1.1 million, mostly resi- have many opportunities and forums to discuss issues with eachdential customers, were conducting online transactions with us. other and with management and are encouraged to do so. Whileincrease in residential 48% Providing support to the communityaccount is a long-standing tradition at AEP.delinquencies Here, employeescompared from AEP Ohio deliver holidaywith 2009 food boxes at a27 Cambridge, Ohio, employee web- food pantry. casts conducted in 2010 2011 AEP Corporate Accountability Report 45

ground rules require that discourse be respectful, employees feel involvement are supported by AEP Connects Grants of $150 each.free to comment on anything – including the chairman’s blog posts. The grants go to organizations of employees’ choosing, where theyAnd they do. have volunteered 40 or more hours during the year. In 2010, 617 We held 27 employee webcasts last year on issues ranging grants were awarded to employee-supported organizations. Wefrom gridSMART ® to copper theft and transmission strategy to also track the economic value of the volunteer time our employeestransformation of our Generation business. Employees are encour- give, which was approximately $1.2 million (using a value of volun-aged to call in or submit questions in advance, which executives teer time of $20.85 per hour, based upon the Independent Sectoranswer live on the air. The webcasts are recorded and can be estimated value).viewed by employees on demand. We organized a weeklong Energy Sustainability Week to Supporting Economic Prosperity & Charitable Givinghelp our employees better connect sustainability, their jobs and In a slow economy, AEP’s community support is more importantour business strategy. More than 60 events were held at 30 work than ever. Our operating companies contributed more than $2.5 mil-locations in seven states. We collaborated on the effort with peer lion in 2010 to more than 160 state and local organizations that helputilities through the Electric Power Research Institute Sustainability create jobs and improve the quality of life in our local communities.Interest Group. This is an increase of more than $1 million from 2009. AEP and our AEP Foundation donated a total of more thanInvolved in Our Communities $23.6 million to some 2,700 organizations in 2010. This was a slightStrong communities are good for people and good for business. increase from the more than $23.4 million contributed in 2009.It’s not only our operating companies that are engaged in the com- Social investments are vital to keeping valuable communitymunity; our employees are, too. AEP employees donated more than organizations intact and able to provide services that our custom-57,000 volunteer hours in 2010 to assist a variety of organizations ers need. AEP contributed approximately $11.8 million in corporateand educational institutions. And they did this at their own initiative giving; our AEP Foundation donated more than $11.7 million.and on their own time. We are very proud of this tradition of service. Our employees’ generosity and our commitment to community Company Blogs Foster Candor, Communications AEP provides several ways for employees to communicate and provide feedback, including 20 blogs. One of the more popular is Chairman and CEO Mike Morris’s blog, called “Wide Open,” on which any employee is free to post. Here are some excerpts from “Wide Open” from April 2010, regarding the announcement of the voluntary severance program. “ All in all, these are very difficult times, and these are very difficult things to go through. Those of you who are happy, and many of you are, I wish you well. Those of you who are not as pleased with the program, I’m sorry about that, but it is essential. One has laid out a pretty critical point that I’d like to at least address. It has to do with the whole notion of shareholders first. And the answer to that is, and always has been: YES, shareholders first. If it weren’t for people willing to invest in the company, we’d have no company. I appreciate that customers are essential, because if they aren’t satisfied, we have no business. And I know that we as employees are there to please our customers. So, I understand the trinity of what we’re dealing with – it is an equilateral ” triangle – but, the shareholders are at the peak of the triangle, and we need to understand that. – Posted by Chairman Mike Morris “ In some line crews we have been short-handed for some time, and work a lot of overtime to restore power. This being said, with further reductions of line mechanics how will we be able to keep up customer service and not have to increase the amount ” of overtime worked? – Posted by an AEP employee “ Declaring the 400th consecutive dividend during a contraction is at the same time unavoidable and bold. Shareholders really must come first. We don’t just exist because of shareholders’ investments; we will *continue* to exist as shareholders *continue* to consider us a “sure thing.” This dividend may raise a couple eyebrows, but it declares we’re contracting in a controlled and ” forward-thinking way. – Posted by an AEP employee46 Social Performance: Stakeholder Engagement

www.AEPsustainability.com Corporate & Shareholder Information Corporate Headquarters Company in the broker’s name, and this is sometimes referred to as “street 1 Riverside Plaza name” or a “beneficial owner.” AEP does not know the identity of individual Columbus, OH 43215-2373 shareholders who hold their shares in this manner; we simply know that a 614-716-1000 broker holds a certain number of shares which may be for any number of AEP is incorporated in New York. investors. If you hold your stock in street name, you receive all dividend payments, annual reports and proxy materials through your broker. Therefore, Stock Exchange Listing: The Company’s common stock is traded princi- questions about your account should be directed to your broker. pally on the New York Stock Exchange under the ticker symbol AEP. Dividend Reinvestment & Direct Stock Purchase Plan: A Dividend Re- Internet Home Page: Information about AEP, including financial documents, investment and Direct Stock Purchase Plan is available to all investors. It is Securities and Exchange Commission filings, news releases, investor presen- an economical and convenient method of purchasing shares of AEP common tations, shareholder information and customer service information, is avail- stock, through initial cash investments, cash dividends and / or additional op- able at www.AEP.com/investors. tional cash purchases. You may obtain the Plan prospectus and enrollment Inquiries Regarding Your Stock Holdings: Registered shareholders authorization form by contacting the transfer agent or visiting www.AEP.com (shares that you own, in your name) should contact the Company’s transfer /investors/directstockpurchase. agent, listed below, if you have questions about your account, address changes, stock transfer, lost certificates, direct deposits, dividend checks and other Financial Community Inquiries: Institutional investors or securities anal- administrative matters. You should have your Social Security number or ac- ysts who have questions should direct inquiries to Bette Jo Rozsa, 614-716- count number ready; the transfer agent will not speak to third parties about an 2840, bjrozsa@AEP.com; Julie Sherwood, 614-716-2663, jasherwood account without the shareholder’s approval or appropriate documents. @AEP.com; or Sara Macioch, 614-716-2835, semacioch@AEP.com. Individual shareholders should contact Kathleen Kozero, 614-716-2819, Transfer Agent & Registrar klkozero@AEP.com. Computershare Trust Company, N.A. P.O. Box 43078 Number of Shareholders: As of Dec. 31, 2010, there were approximately Providence, RI 02940-3078 91,000 registered shareholders and approximately 331,000 shareholders Overnight Deliveries: 250 Royall Street, Canton, MA 02021-1011 holding stock in street name through a bank or broker. There were Telephone Response Group: 1-800-328-6955 480,807,156 shares outstanding on Dec. 31, 2010. Internet address: www.computershare.com/investor Form 10-K: Upon request, we will provide without charge a copy of our Form Hearing Impaired #: TDD: 1-800-952-9245 10-K for the fiscal year ended Dec. 31, 2010. A copy can be obtained via mail Beneficial Holders: (Stock held in a bank or brokerage account) — When with a written request to AEP Investor Relations, by telephone at 1-800-237- you purchase stock and it is held for you by your broker, it is listed with the 2667 or electronically at klkozero@AEP.com. Comparison of Five-Year Cumulative Total Return Among American Electric Power Co., Inc., The S&P 500 Index & The S&P Electric Utilities Index $123 $152 $113 $116 $121 $120 $135 $101 $111 $120 $116 $122 $77 $97 $112 $100* December December December December December December 2005 2006 2007 2008 2009 2010 l American Electric Power Co., Inc. l S & P 500 l S & P Electric Utilities * $100 invested on 12 / 31/ 05 in stock or index, including reinvestment of dividends. Fiscal year ending Dec. 31. ©2010 S&P, a division of The McGraw-Hill Cos., Inc. All rights reserved. 2011 AEP Corporate Accountability Report 47

CAR 2011 CAR 2011 GRI Table of Contents / Key Indicators All GRI information and data are on the Web Key: CAR 2011 = Report Page Number 4.10 Processes for evaluating the Board’s own performance EU = Electric Utility Sector Supplement 4.11 How the precautionary approach is addressed . . . . . . . . . . . . 2 – 5 4.12 Externally developed charters Profile 4.13 Memberships in associations . . . . . . . . . . . . . . . . . . . . . . . 43 – 46 Strategy & Profile 4.14 Stakeholder groups engaged by the organization . . . . . . . . 43 – 44 1.1 Statement by the CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 – 5 4.15 Identification and selection of stakeholders . . . . . . . . . . . . . 42 – 46 1.2 Description of key impacts, risks, and opportunities 4.16 Approaches to stakeholder engagement . . . . . . . . . . . . . . . 42 – 43 4.17 Use of stakeholder engagement . . . . . . . . . . . . . . . . . . . . . 42 – 46 Organizational Profile 2.1 Name of the organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Economic Performance Indicators 2.2 Primary brands, products, and / or services . . . . . . . . . Inside cover Disclosure on Management Approach . . . . . . . . . . . . . . . . . . . . . 12 – 13 2.3 Operational structure of the organization . . . . . . . . . . . Inside cover EC1 Direct economic value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 – 15 2.4 Location of organization’s headquarters . . . . . . . . . . . Inside cover EC2 Financial implications of climate change . . . . . . . . . . . . . . . 30 – 31 2.5 Countries in which the company has operations . . . . . Inside cover EC3 Defined benefit plan coverage 2.6 Nature of ownership and legal form . . . . . . . . . . . . . . . . . . . . . . 47 EC4 Financial assistance received from government . . . . . . . . . . . . 31 2.7 Markets served . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside cover EC5 Entry level wage compared to local minimum wage 2.8 Scale of the reporting organization . . . . . . . . . . . . . . . Inside cover EC6 Locally based suppliers spending 2.9 Significant changes in size, structure, or ownership EC7 Hiring from local community 2.10 Awards received in the reporting period EC8 Public benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 EC9 Indirect economic benefits Report Parameters 3.1 Reporting period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Environmental Performance Indicators 3.2 Date of most recent previous report (if any) . . . . . . . . . . . . . . . . . 8 Disclosure on Management Approach . . . . . . . . . . . . . . . . . . . . 22 – 27 3.3 Reporting cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4 Contact point for questions regarding the report . . . . . Inside cover Material 3.5 Process for defining report content . . . . . . . . . . . . . . . . . . . . . . . 7 EN1 Materials used by weight or volume . . . . . . . . . . . . . . . . . . . . . 31 3.6 Boundary of the report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 EN2 Percentage of materials recycled . . . . . . . . . . . . . . . . . . . . 23 – 24 3.7 Specific limitations on the scope or boundary of the report 3.8 Reporting on other entities Energy 3.9 Data measurement techniques and the bases of calculations . . . 8 EN3 Direct energy consumption by primary energy source . . . . . 30 – 31 3.10 Explanation of the nature and effect of any re-statement EN4 Indirect energy consumption by primary energy source 3.11 Significant changes from previous reporting period EN5 Conservation and efficiency improvement savings . . . . . . . . . . 31 EN6 Energy-efficient or renewable initiatives . . . . . . . . . . . . . . . . . . 31 GRI Content Index EN7 Initiatives to reduce indirect energy consumption 3.12 Standard disclosures table . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 3.13 Accuracy and completeness of report . . . . . . . . . . . . . Inside cover Water EN8 Total water withdrawal by source Governance, Commitments & Engagement EN9 Water sources significantly affected by withdrawal 4.1 Governance structure of the organization . . . . . . . . . . . . . . . . . . 5 of water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 – 27 4.2 Indicate whether the Chair of the Board is also EN10 Percentage and total volume of water recycled and reused an executive officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.3 Independence of the Executive Board . . . . . . . . . . . . . . . . . . . . . 9 Biodiversity 4.4 Making recommendations to the Executive Board EN11 Location and size of high biodiversity land 4.5 Linkage between performance and executive compensation EN12 Impacts on biodiversity 4.6 Avoiding conflicts of interest EN13 Habitats protected or restored. . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.7 Qualifications of the Executive Board EN14 Strategies for managing impacts on biodiversity . . . . . . . . . . . . 27 4.8 Corporate mission and values EN15 Number of IUCN Red List species and national conservation 4.9 Board-level processes for identifying and managing risks list species with habitats in areas affected by operations and opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 GRI Table of Contents / Key Indicators

www.AEPsustainability.com CAR 2011 CAR 2011 CAR 2011 CAR 2011 Electric Utility Sector Supplement IndexEmissions, Effluents & Waste HR9 Violations of indigenous people’s rights Profile Human RightsEN16 Greenhouse gas emissions by weight . . . . . . . . . . . . . . . . . . Inside cover Organizational Profile HR5 Commentary – Freedom of associationEN17 Other relevant indirect greenhouse gas emissions . . . . . . . . Inside cover Society EU1 Installed capacity . . . . . . . . . . . . . . . . . . . . . . . . . . Inside coverEN18 Greenhouse gas emissions reductions initiatives . . . . . . . . . . . . . . 28 – 31 Disclosure on Management Approach . . . . . . . . . . . . . . . . . . . . . . . 20, 42– 44 EU2 Net energy output . . . . . . . . . . . . . . . . . . . . . . . . . Inside cover SocietyEN19 Greenhouse gas emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside cover SO1 Nature, scope and effectiveness of any programs EU3 Number of accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SO1 Commentary – Community impact programs . . . . . . . . . . . . 46EN20 NOx, SO2, and other significant air emissions . . . . . . . . . . . . . Inside cover SO2 Business units analyzed for corruption EU4 Transmission and Distribution mileage. . . . . . . . . . Inside cover EU19 Stakeholder involvement . . . . . . . . . . . . . . . . . . . . . . . . 42 – 46EN21 Total water discharge by quality and destination . . . . . . . . . . . . . . . 26 – 27 SO3 Percentage of employees trained in anti-corruption EU5 CO2 permits EU20 Displaced peopleEN22 Waste volume by type and disposal method . . . . . . . . . . . . . . . . . . . . . 27 SO4 Actions taken in response to incidents of corruption EU21 Contingency planningEN23 Total number and volume of significant spills . . . . . . . . . . . . . . . . . . . . . 23 SO5 Public policy positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38– 41 Economics EU22 Displaced peopleEN24 Hazardous waste. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SO6 Contributions to political parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 EU6 Reliability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 – 18 EU23 Electricity services programs. . . . . . . . . . . . . . . . . . . . . . . . 43EN25 Water and runoff discharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 – 27 SO7 Legal actions for anti-competitive behavior EU7 Demand-side programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 EU24 Practices addressing barriers to services SO8 Fines for noncompliance with laws and regulations . . . . . . . . . . . . . . . . 23 EU8 R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 31Products & Services EU9 Nuclear decommissioning Product ResponsibilityEN26 Initiatives to mitigate environmental impacts . . . . . . . . . . . . . . . . . . 22 – 27 Product Responsibility EU10 Planned capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 PR1 Commentary – Life-cycle stagesEN27 Percentage of products sold and their packaging materials Disclosure on Management Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 – 5 EU11 Generation efficiency EU25 Public injuries & fatalities . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 that are reclaimed by category PR1 Life cycle stages of products and services . . . . . . . . . . . . . . . . . . . 16 – 18 EU12 Losses EU26 Unserved populationEN28 Fines for noncompliance with environmental regulations . . . . . . . . . . . . 23 PR2 Number of noncompliance incidents . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 EU27 Residential disconnectionsEN29 Impacts of transporting products, goods, materials and work force PR3 Product and service information . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 – 17 Environmental EU28 Power outage frequency . . . . . . . . . . . . . . . . . . . . . . . . . . . 17EN30 Total environmental protection expenditures and investments PR4 Number of noncompliance labeling incidents EN1 Commentary – Materials by weight or volume. . . . . . . . . . . . 30 EU29 Average power outage duration . . . . . . . . . . . . . . . . . . . . . . 17 by type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 26 PR5 Customer satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 EN8 Commentary – Total water withdrawal by source EU30 Average plant availability PR6 Programs related to marketing communications . . . . . . . . . . . . . . . . . . 45 EN12 Commentary – Biodiversity activitiesLabor Practices & Decent Work PR7 Number of noncompliance marketing incidents EU13 Biodiversity offsetDisclosure on Management Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 32 – 37 PR8 Substantiated breaches of customer privacy EN14 Commentary – Biodiversity strategyLA1 Total work force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 PR9 Fines for use of products and services noncompliance . . . . . . . . . . . . . 23 EN16 Commentary – Greenhouse gas emissions. . . . . . . Inside coverLA2 Employee turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 EN18 Commentary – Greenhouse gas reduction initiatives . . . 30 – 31LA3 Full-time, temporary or part-time employee benefits EN20 Commentary – Air emissions . . . . . . . . . . . . . . . . . Inside coverLA4 Employees covered by collective bargaining agreements . . . . . . . . . . . 37 EN21 Commentary – Water discharge . . . . . . . . . . . . . . . . . . . . . 27LA5 Minimum notice regarding operational changes EN22 Commentary – Waste type & disposal method . . . . . . . . . . . 27LA6 Percentage of work force represented in health and safety committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 – 34 LaborLA7 Rates of injury and absenteeism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 EU14 Work force retention . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 – 36LA8 Serious diseases programs EU15 Eligible to retire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36LA9 Health and safety topics covered in formal agreements EU16 Health & safety policies . . . . . . . . . . . . . . . . . . . . . . . . . 32 – 34LA10 Average hours of training LA1 Commentary – Total work force . . . . . . . . . . . . . . . . . . . . . . 32LA11 Skills management and lifelong learning programs . . . . . . . . . . . . . 35 – 36 LA2 Commentary – TurnoverLA12 Percentage of employees receiving performance reviews EU17 Days worked by contractorLA13 Composition of governance bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 EU18 Percent of health & safety screening . . . . . . . . . . . . . . . . . . 36LA14 Ratio of basic salary of men to women EU LA4 Percent of contractors covered by unions EU LA7 Health & safety of contractors . . . . . . . . . . . . . . . . . . . . . . . 35Human RightsDisclosure on Management Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42HR1 Human rights clauses in investment agreementsHR2 Human rights screening for contractorsHR3 Human rights policies, procedures and trainingHR4 Discrimination incidents and actions takenHR5 Freedom of associationHR6 Child laborHR7 Compulsory laborHR8 Security personnel trained in human rights

www.AEPsustainability.comForward-Looking InformationThis report made by AEP and its Registrant Subsidiaries contains forward-looking statements within the meaning of Section 21E of the SecuritiesExchange Act of 1934. Although AEP and each of its Registrant Subsidiaries believe that their expectations are based on reasonable assumptions,any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected.Among the factors that could cause actual results to differ materially from those in the forward-looking statements are:• The economic climate and growth in, or contraction within, our service • Timing and resolution of pending and future rate cases, negotiations territory and changes in market demand and demographic patterns. and other regulatory decisions ( including rate or other recovery of new investments in generation, distribution and transmission service• Inflationary or deflationary interest rate trends. and environmental compliance ).• Volatility in the financial markets, particularly developments affecting • Resolution of litigation. the availability of capital on reasonable terms and developments impairing our ability to finance new capital projects and refinance • Our ability to constrain operation and maintenance costs. existing debt at attractive rates. • Our ability to develop and execute a strategy based on a view• The availability and cost of funds to finance working capital and regarding prices of electricity, natural gas and other energy-related capital needs, particularly during periods when the time lag between commodities. incurring costs and recovery is long and the costs are material. • Changes in the creditworthiness of the counterparties with whom we• Electric load, customer growth and the impact of retail competition, have contractual arrangements, including participants in the energy particularly in Ohio. trading market.• Weather conditions, including storms, and our ability to recover sig- • Actions of rating agencies, including changes in the ratings of debt. nificant storm restoration costs through applicable rate mechanisms. • Volatility and changes in markets for electricity, natural gas, coal, nu-• Available sources and costs of, and transportation for, fuels and the clear fuel and other energy-related commodities. creditworthiness and performance of fuel suppliers and transporters. • Changes in utility regulation, including the implementation of ESPs• Availability of necessary generating capacity and the performance of and related regulation in Ohio and the allocation of costs within re- our generating plants. gional transmission organizations, including PJM and SPP.• Our ability to resolve I&M’s Donald C. Cook Nuclear Plant Unit 1 res- • Accounting pronouncements periodically issued by accounting toration and outage-related issues through warranty, insurance and standard-setting bodies. the regulatory process. • The impact of volatility in the capital markets on the value of the in-• Our ability to recover regulatory assets and stranded costs in connec- vestments held by our pension, other postretirement benefit plans, tion with deregulation. captive insurance entity and nuclear decommissioning trust and the impact on future funding requirements.• Our ability to recover increases in fuel and other energy costs through regulated or competitive electric rates. • Prices and demand for power that we generate and sell at wholesale.• Our ability to build or acquire generating capacity, including the Turk • Changes in technology, particularly with respect to new, developing Plant, and transmission line facilities ( including our ability to obtain or alternative sources of generation. any necessary regulatory approvals and permits ) when needed at • Other risks and unforeseen events, including wars, the effects of ter- acceptable prices and terms and to recover those costs ( including rorism ( including increased security costs ), embargoes, cyber secu- the costs of projects that are canceled ) through applicable rate rity threats and other catastrophic events. cases or competitive rates. • Our ability to recover through rates or prices any remaining un-• New legislation, litigation and government regulation, including over- recovered investment in generating units that may be retired before sight of energy commodity trading and new or heightened require- the end of their previously projected useful lives. ments for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances or additional regula- AEP and its Registrant Subsidiaries expressly disclaim any obligation tion of fly ash and similar combustion products that could impact the to update any forward-looking information. continued operation and cost recovery of our plants. 2011 AEP Corporate Accountability Report

smart meters installed in OhioAmerican Electric Power1 Riverside PlazaColumbus, OH 43215614-716-1000www.AEP.com 27

2011 AEP Corporate Accountability Report

by American Electric Power on May 02, 2011

Accessibility

Categories

Tags

Upload Details

Usage Rights

1 Embed 1

Statistics

2011 AEP Corporate Accountability Report — Document Transcript